Cover STORY
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Post-Lehman and Merrill, insiders look at the bleak road ahead
By Paul Bubny
Editor
This past month, Lehman Brothers and Merrill Lynch became the new poster children for the credit crisis in a stunning upheaval that rocked our already shell-shocked
commercial real estate market. Their meltdowns provided undeniable proof that the financial woes of the past year are far from over.
In fact, start placing your bets that the capital mire that’s been holding us down will keep us down for another year.
As lenders tighten their grip on the purse strings still more, the
question becomes: where do we go from here? The consensus
among the panel of experts assembled by Real Estate New York is
that the CMBS market must return and banks must re-capitalize,
but this greater lending power needs to be combined with prudence
and close attention to underwriting standards.
RENY sounded out these industry experts originally in late August to discuss the present and future of CRE finance. As this issue
was going to press, we asked them to revisit their comments in light
of the collapse of Lehman and sale of Merrill. Participants included
Rick Gallitto, executive director for Tremont Realty Capital;
Michael P. Higgins, managing director of real estate finance at
CIBC World Markets; Edward Jordan, manager of the New York
region for Marcus & Millichap Real Estate Investment Services;
Gino Martocci, director of commercial real estate lending with
M&T Bank’s New York division; and Robert M. White Jr., founder
and president of Real Capital Analytics. Martocci and Jordan addressed the Lehman/Merrill question, while the other panelists
chose not to.
Lehman and Merrill—what’s the upshot?
Gino Martocci: The events of earlier this month (Lehman, Merrill,
AIG) have introduced additional risk to the downside for commercial real estate in New York City. Potentially greater layoffs of generally highly compensated workers, more office vacancy and lower
incomes and tax revenues combine with the potential for a great
deal of Lehman CMBS and whole loan paper being liquidated. The
NYC CRE may be pushed market into sharper depreciation than
previously anticipated.
