ICSC: International Council of Shopping Centers

RECon panel: End to credit crunch in sight?

ICSC RECon attendees at today's capital-markets session,
appropriately named "The End of Free Money," got a
sobering view of the turbulent retail-financing world,
but left on an upbeat note: Panelists opined
that the worst may already be behind the
still-constricted commercial-lending industry.

Just a year ago in Las Vegas, the retail real estate
world was told that CMBS lending volume stood at $80
billion for the first four months of 2007 and that
multiple deals were still getting inked. The tally for
the first four months of 2008: just $9.9 billion, said
panel head John Levy, chairman of John Levy & Co., a
real estate investment bank. "The numbers look like
they fell of a cliff," he said.

Center owners have yet to make realistic price
adjustments that would spur additional lending
activity, Levy said. "Buyers want a price that the
property is going to sell for in nine months while
sellers want the price that it was nine months ago."

To adjust, institutional investment fund TIAA-CREF is
purchasing more top-flight community grocery-anchored
centers because they are more likely to hold their
occupancy in the current mercurial market, said the
fund's managing director, Rick Coppolla. Ron Lubin,
managing director of Crystal Capital, said his firm
has also seen a flight to quality. "A lot of the money
out there is going to trophy properties," he said.

Retail developers and investors still face a lack of
affordable senior-financing products and have been
forced to seek out more expensive intermediary sources
that make many projects not "pencil," panelists
agreed.

"The main problem is that none of us is smart enough
to estimate a property's value right now," said Adam
Raboy, managing director of the Credit Suisse Real Estate Finance and Securitization Group, in New York City. Flush-with-cash institutional investors
have much more leverage than other lenders at present,
panelists said. "It seems like life-insurance
companies are now the prettiest girls at the dance,"
Levy observed.

Retail sales per square foot are more likely to be
negatively affected going forward by a continuing
housing crisis in states such as Florida and
California and parts of Nevada (including Las Vegas),
where housing accounts for 20 percent or more of the
economy, in contrast to the customary 10 percent
impact in most of the U.S., said Coppolla.
Smaller community banks have been forced to the
lending sidelines because of bad loans to home
builders, said Raboy.

At present, Shopping Centers are routinely being
underwritten at 80 percent occupancy in contrast to 90 percent
occupancy a year ago, said Raboy. Coppolla concurred:
"We are definitely paring back our growth-rate
assumptions."

However, Raboy said he is heartened by small
improvements in capital-lending markets in the last 45
to 60 days. "The light at the end of the tunnel is no
longer an oncoming train," he said. "By this time next
year, the business should be back on its way to
normalcy." Lubin agreed, but added that all bets are off if
the economy worsens dramatically. "Prospects will
hinge,” he said, “on whether we go into a deep recession."