Finance, Commercial Real Estate Leaders Convene in San Diego For Annual Trigild Lender Conference

SAN DIEGO -- A sluggish labor market, tight credit and Europe's debt crisis are all stubborn roadblocks to economic recovery, according to finance and commercial real estate leaders who recently addressed the 11th annual Trigild Lender Conference in San Diego.

Themed "Exiting the Storm," the annual three-day event featured headliners including Sam Chandan, Ph.D., a noted economist and active commentator on issues of national and global significance; international corporate fraud expert Juval Aviv and Norm Miller, Ph.D., a professor of real estate at the University of San Diego (USD). More than 400 participants convened to hear dozens of industry experts explore compelling strategies and issues related to the finance, real estate and lending industries, with panels and breakout sessions including "How to Get the Resolution Lenders Want," "Disposition/Purchasing Alternatives," "Rescue Finance/Buying Properties While Preserving the Debt" and "Changing Times, Changing Tactics."

Aviv, a retired major in the Israeli Defense Force and president of international security firm Interfor, opened the conference by sharing his insights on uncovering corporate fraud. "Fraud has become a multi-billion dollar industry that carries very little risk for its perpetrators," he said. "In a slow economy, loan fraud increases dramatically and due diligence is an imperative."

According to Chandan, who focused on the economic and capital trends behind commercial real estate's recovery, today's market faces some big hurdles. "Europe's debt crisis is a source of global macro instability," he said. Furthermore, "political dysfunction related to the budget debate and the prioritization of regulation over job creation also weigh on the U.S."

Ultimately, he said, "the success of any market depends on labor trends." The economic slump will not be over until we see meaningful growth in labor markets, which does not yet look promising. "For every seven jobs we lost, we have recovered only one."

The weak labor market fuels another big problem, said Miller, "structural unemployment -- a mismatch of skills versus job."

Not surprisingly, high unemployment will continue to impact the housing market. “We need even faster foreclosures to help the housing market move foreword, but several states are actually adding costs to lenders to slow the process,” said Miller.

The news from the commercial real estate industry front is a bit more positive. "We will see 300 or more IPOs (initial public offerings) which will increase the demand for office space," Miller said. 

Markets have stabilized, said Michael O’Hanlon, senior vice president of Berkadia Commercial Mortgage LLC. “Extending debt has been a successful tactic; underwater loans have recovered, and capital markets will come back.” 

Transaction activity and credit conditions continue to improve in major markets. In coastal cities such as Los Angeles, San Francisco and New York, asset prices have risen dramatically  – in some cases higher that their 2007 peaks. 

“Sales of commercial properties in receivership are also on the rise,” said Trigild CEO Bill Hoffman.  As servicers work through the coming tidal wave of CMBS maturities, receivership sales will continue to soar, and special servicers will stay busy.  “With trillions of dollars coming due in the next few years,” said Thomas Nolan, managing director and chief credit officer of CW Capital Financial Services LLC, “there will always be a strong need for special servicing.” 

Due to the sketchy track record  of the residential real estate industry in recent years, more oversight and transparency is necessary in the CMBS world.  “Because of the abuses and robo-signing in the residential  arena, there is heightened scrutiny  in the CMBS world,” said Ed Foster, a shareholder with Akerman Senterfitt in Orlando.  

Despite the uptick in some markets, there is still lots of distress out there, especially in the smaller markets. Indeed, said Nolan, “while there is recovery in select markets, many areas are still struggling.”

Investment momentum has not been matched by a commensurate recovery in the broadest measures of property fundamentals, Chandan explained.  “Institutional investors are leveraging cheap capital in the search for liquidity, but artificially low cost financing and the need for liquidity are behind the decoupling of prices and fundamentals in top markets.” 

The reasons for the slow rebound are numerous, but ultimately “credit constraints continue to be a huge problem for commercial real estate investors,” Chandan said.  “For lower quality assets and assets in smaller markets, credit availability remains a serious issue.” 

In order for there to be recovery in smaller illiquid markets, there needs to be stronger economics – a necessary condition for sustainable gains.  “Core asset pricing reflects current monetary policy distortions,” Chandan explained. “We cannot ignore the fact that financing costs will rise.”

The lackluster economic and labor recovery is affording these distortionary monetary policies, and continuing to impact consumer confidence – which may be the ultimate key to economic recovery. “What consumers feel makes a big difference,” Chandan said.