Commercial Property News - November 2008 - (Page 7)

Central Europe: Behringer Harvard continues to expand its presence in Central Europe. In July, the company invested in a venture that holds a portfolio of 15 retail and industrial/logistics assets in the Czech Republic, Poland and Slovakia. A pipeline of additional Central European properties has already been identified for potential acquisition. In October, the venture, comprising Behringer Harvard Opportunity REIT I Inc. and St. Wenceslas Property Fund, acquired seven additional assets: a retail property in Hungary, five retail assets in the Czech Republic and a Czech logistics facility. The venture aims to invest in high-growth international markets. Also, Behringer Harvard’s new Hamburg, Germany, office began operations in October. The new office focuses on European real estate acquisitions, as well as asset and property management for the firm’s assets in Europe. —Reach staff writer Elena Gontar at elena.gontar@nielsen.com The Great Capital Strike of 2008 The Great Capital Strike of 2008 began when the Federal Reserve Board established a negative real short-term rate from 2001 to 2005, creating a powerful disincentive for short and safe investments. This artificially low short-term rate created a steep yield curve, resulting in an artificial increase in the price of assets with long-term risk. The extent of leverage—and contingent liabilities—was completely obscured by complex off-balancesheet transactions. By the time the federal funds rate reached 5.25 percent, the yield curve was flat to inverted and the game was over. Severely mismatched, highly leveraged investors had to contend with piles of rapidly maturing shortterm debt, mark-to-market balancesheet marks, debt calls and no yield curve spread. Yet they found that prices for long-term assets were under downward pressure and that their long-term illiquid assets faced 10 to 40 percent bid-ask spreads. Lending rates exploded for all but the most transparent, making By Peter Linneman, Ph.D. it impossible for firms with thin operating margins to generate positive cash flow. Selling illiquid longterm assets meant effectively declaring bankruptcy. Confidence evaporated for virtually every financial firm as “healthy”balance sheets were revealed to hide hundreds of billions of dollars of liabilities and many almost worthless assets, at least at current bid prices.The lack of financial transparency has made every loan and many equity investment opportunities potential land mines, causing everyone to stand still. If every lending category sees historically high foreclosure rates and loss ratios, total losses will be roughly $1.3 trillion, with losses more realistically around half that amount. might attempt to arrange a saleleaseback of its Detroit headquarters as part of its effort to raise $500 million should bond investments from two pension funds fail. —Adam Perrotta The Bush administration’s bailout plan authorizes the Department of the Treasury to acquire as much as $700 billion in “distressed mortgage-related assets” from private firms over the next two years. The fact that the initial bill failed in spite of support from both presidential candidates underscores our longheld view of a recession arriving in 2009 owing to political uncertainty. The goal should be improved transparency: unconditional disclosure of all assets and liabilities by any firm with access to the Fed window, federal deposit guarantees or state insurance guarantees. If regulators press for greater and more rapid disclosure, the return of a normal capital market will be under way by early 2009, although the real economy will struggle forward at 1 to 1.5 percent growth— basically, zero per capita. —Peter Linneman is principal of Linneman Associates and is the Albert Sussman Professor of Real Estate, Finance and Public Policy at the Wharton School of Business at the University of Pennsylvania. SOME CALIFORNIA REDWOODS ARE MORE THAN 2,000 YEARS OLD. DON'T YOU WISH YOUR LENDER HAD THAT KIND OF ENDURING STRENGTH? Standing tall—and remaining strong—no matter what the conditions. That’s what you expect from a lender and that’s what Prudential Mortgage Capital Company delivers. We’ll never waver in our commitment to our clients, and we remain rooted in the Rock Solid® principles that have made us an industry leader. Talk to us, and find out what our staying power can mean for you. PRUDENTIAL MORTGAGE CAPITAL COMPANY 1-888-263-6800 ©2008. Prudential Financial. www.prumortgagecapital.com www.cpnonline.com • November 2008 • COMMERCIAL PROPERTY NEWS 7 ECONOMIST’S OUTLOOK Deal Trends http://www.prumortgagecapital.com http://www.prumortgagecapital.com http://www.cpnonline.com

Table of Contents Feed for the Digital Edition of Commercial Property News - November 2008

CPN - November 2008 Contents Starting Line Seniors Housing Data/Analysis Conferences Through the Fog CPN’s Top Cities for Investment & Corporate Relocation Finance International Sustainability CPN-Nielsen Claritas Special Report

Commercial Property News - November 2008

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