If only the issues facing the commercial real estate industry could be solved by a Time Machine and we could travel back to the boom times of 2005-2006. Would we make the same decisions to buy and finance properties with massive debt loads? with teaser interest rates? with short term maturities? with interest funded by capitalized interest reserves not operations? with loans based on future rent growth? with loans based on the liquidation of the property as condos not the cash flow that could be generated as apartments? Chances are the answer is NO! Since we don't have a time machine, where do we go from here?

As I see it... the biggest problem facing commercial real estate is the capital markets' lack of liquidity. CMBS issuance went from $230 billion in 2007 to $12 billion in 2008 to less than a billion dollars YTD in 2009 (my research materials are available to view or download from the box.net widget on my Blog labeled "CMSA-Compendium"). Higher vacancies and higher reserves can be built into financial models to determine an underwritten cash flow (UCF). We can apply a stressed interest rate and a higher than normal debt coverage ratio to the UCF to determine very conservative maximum loan proceeds. As delightful a geeky math exercise that might be... when there is no functioning capital market to provide liquidity, there are no transactions in some market segments.

For example, construction loans on hotels were sized for a relatively easy takeout from a CMBS lender. What used to get easily financed by the voracious CMBS machine at 75-80% LTV/LTC now will only justify 40-65% LTC/LTV (lesser of) financing from long term investors such as insurance companies and pension funds based on the new ultra conservative underwriting standards. This makes commercial real estate a "rich man's game" once again and will knock all the amateurs out of the business. For those with massive amounts of cash and a long time horizon this is the greatest buying opportunity of our lifetimes. A stunning amount of assets will be lost by developers / investors that do not have the staying power to sustain short term losses or the equity to fill the gap between what they owe and the new, much lower loan amounts they are offered. 

Since 1994 the principals of Bison Financial Group have been cultivating new and innovative sources of capital to fund real estate entrepreneurs in need of debt & equity capital for compelling investment opportunities.

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