Peter Pays Paul

At many of the networking functions I have attended I have heard about “The money on the sidelines”. The speaker is always referring to the investors that are waiting for the bottom of the market to be declared (I’m not sure who will make this announcement) and will jump in with their barrels of money to make acquisitions at incredible prices. Thus they have “money on the sidelines”.

Dianne Crocker has written a great article about this on her blog about the same topic.

Are There Really $$s on the Sidelines?

Crocker writes:

Whether investors move dollars into play on their own or whether the government will see fit to intervene as it did with the RTC during the savings and loan crisis remains to be seen, but what I do know is this: Prices are still falling, dollars are being mobilized to take advantage of deals, and those who are willing to put their money down will be seeking clarity before closing on deals. Fear has replaced greed and paralyzed our market, but greed will return. Until then, unfortunately, we live in limbo as the uncertainty continues.

My suspicion is that when the market turns, we will see a flurry of activity. Deals will come together at a rapid pace.

Crocker’s article sites Brett White CEO of CB Richard Ellis as saying that CBRE has raised over $5 billion (with a ‘B’) to strike when the time is right. There could be as much as $50 Billion waiting to swoop in and make purchases.

I believe a few things need to take place prior to the sideline money jumping in:

1. Lending needs to stabilize. The pendulum has swung from over exuberant to paralyzed fear. Some of the buyers will pay all cash, but most will want to leverage their investment. Leverage requires lenders.
2. Government handouts/bailouts need to stop. Why? Banks do not like losing money. As long as they think that Uncle Sam will bail them out by buying bad assets at above market rates, they will be unwilling to unload them at market prices. Once the perceived safety net is removed, the banks will unload assets and take the hit.
3. The inauguration needs to take place. Many people want to see how the President-elect Obama handles his duties. How will he govern? What reforms will he make? Will he pass a stimulus? All of these factors have investors and owners nervous.

The year 2009 will definitely be interesting and exciting.

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