Wednesday, December 26, 2007

Gloom and doom contrarians weigh in again

It is great to be back. I had a wonderful Christmas with my family (including my three remaining grandparents -- it is such a blessing to still have them all at my age). I am expecting a slowish day or two that will allow me to catch up here, catch up with administrative work for my and prepare for 2008 (and some exciting plans for me personally and professionally).

As I have said before, some investors are not buying into the prevailing feeling in the market that 2008 is going to be a bad year in the commercial real estate market. And face it: many of the best in the game buy when everyone else is selling and vice versa. We saw this in the last two years. According to the contrarians, "The common belief is opportunity is knocking for the deep-pocketed crowd because the credit crunch has eliminated high-leveraged buyers from the bidding ranks due to lenders' tightening underwriting practices."

Most of these people have access to major league capital that will permit them to lever deals at only 60-65% without tapping the mezz market. So they can buy properties at higher cap rates with more of their own money. But I do disagree with them to the extent they think smaller players won't be able to get into the game at all. The smart ones will learn to adapt, but many others will have to sit this market out for a while.

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