Peter Pays Paul

CNBC has an interview with Barry Gosin from Newmark Knight Frank in Fear in Commercial Real Estate.

“The question really is how quickly will this adjust? When will rent come back, when will cap rates reduce and when will the fear be out of the market? Fear is a lot more of a powerful emotion than greed,” said Gosin. “You can control greed to a certain extent but you cannot control what you do under fear.”

Gosin also noted that banks have assets left on their balance sheets to refinance some of the loans, but the financial institutions are putting other concerns first.

“In addition to real estate, banks are concerned about consumer lending and they’re concerned about revolving credit,” he said. “With everything assaulting the banks, they are still hoarding cash and as a result they are not very easily going to roll over some of these loans.”

There is truth in Gosin’s statements. Investors are gripped  with fear.

Existing investors are frozen by the uncertain future for rents, vacancy, and interest rates. Many see the value of their property decreasing and they are uncertain of what to do.

Investors with capital are cautious and are only investing in projects that have very little downside.

Take for instance the Yellowstone Club in Montana. GlobeSt.com reports that the Yellowstone Club Trades for $115M.

The new owner is Boston-based CrossHarbor Capital Partners, a joint venture of Discovery Land Co. and members of the Yellowstone Club. Discovery Land Co., based in Scottsdale, AZ, developed the Kukio Resort, a private club on the Big Island of Hawaii in partnership with the Honolulu-based Kobayashi Group, according to published reports. CrossHarbor managing director Sam Byrne, who previously invested approximately $200 million in Yellowstone Club real estate, offered to buy the club last year for $470 million, according to reports.

Buying a property for 25% of what you offered last year is a pretty good deal.

CoStar reports that Macquarie Selling 75% Interest in 86 U.S. Centers for $1.3 Billion

CalPERS said that this portfolio is substantially comprised of the same shopping centers it sold to Macquarie in a 2005 portfolio transaction, under which Macquarie acquired a 75% interest in 100 centers from CalPERS/First Washington for an amount reflecting a total portfolio value of $2.74 billion.

The purchase is at a significant discount to what was paid in 2005 and reflects Macquarie’s desire to focus on Australia and New Zealand.

Unfortunately, government meddling only aggravates the uncertainty in the market. If the markets were left to correct on their own, investors could act based on historical trends. However, with Uncle Sam slapping the Invisible Hand of the market investors are unable to predict how long they will have to hold out.

Until the fear resides it is going to be a rough ride. Hold on to your hat.

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