Business Management Executive Q&A
Sept 1, 2007
By: Barbra Murray, Contributing Editor
New York City—The recent credit crunch has the financial world on edge. The Federal Reserve even took action on Aug. 17, reducing its primary credit discount rate by half a percentage point in order to, as per the agency’s official statement, “promote the restoration of orderly conditions in financial markets.” While commercial real estate players are taking note, they are hardly getting their knickers in a knot. David Lynn, managing director of research and investment strategy for real estate management and advisory services firm ING Clarion, explained why there is no need for panic.
CPN: Why the credit crunch now?
Lynn: We’ve had a very good economy for the past five years—rising GDP, pretty high production, global growth, rising corporate profits—so the debt market has been pretty cheap, but that can only go on for so long. The cost of debt reached a historical low, but that can’t last.
CPN: The crunch seems to be all anyone with ties to finance can talk about lately. Is the situation really so dire?
Lynn: What we’re seeing is market jitters. It’s like an earthquake: If you’re in California and suddenly a quake occurs, you think the world is ending. Everyone starts asking questions: “What do we do? Do we stay put? Do we go back into our homes?” Eventually, people do go back inside. It’s the same thing: People are staying on the sidelines to make sure that rates and the cost of doing business don’t change appreciably. It’s a wait-and-see kind of response.
CPN: When will things return to normal?
Lynn: Eventually—probably in weeks, not days—people will say the economy is fundamentally in good shape, productivity is pretty good and corporate profits are up and that money has to be invested. But before getting back in, people want to see stability.
CPN: There is a huge panic in the residential real estate sector. Why is the situation more serious for residential real estate than for commercial?
Lynn: Underwriting for residential was pretty lax. Builders were giving out loans to just about anybody. Now, that situation has gotten better, and it’s a good thing that home builders are slowing down the supply.
CPN: What about multi-family, particularly since the condominium craze has simmered down?
Lynn: Multi-family cap rates are the lowest of any sector. Pricing is for future demand coming from Echo Boomers and people who cannot afford to buy.
CPN: Will the commercial real estate industry escape this phase essentially unscathed?
Lynn: Real estate vacancies are declining and there is not an oversupply problem at all. All that bodes well.
By: Barbra Murray, Contributing Editor
New York City—The recent credit crunch has the financial world on edge. The Federal Reserve even took action on Aug. 17, reducing its primary credit discount rate by half a percentage point in order to, as per the agency’s official statement, “promote the restoration of orderly conditions in financial markets.” While commercial real estate players are taking note, they are hardly getting their knickers in a knot. David Lynn, managing director of research and investment strategy for real estate management and advisory services firm ING Clarion, explained why there is no need for panic.
CPN: Why the credit crunch now?
Lynn: We’ve had a very good economy for the past five years—rising GDP, pretty high production, global growth, rising corporate profits—so the debt market has been pretty cheap, but that can only go on for so long. The cost of debt reached a historical low, but that can’t last.
CPN: The crunch seems to be all anyone with ties to finance can talk about lately. Is the situation really so dire?
Lynn: What we’re seeing is market jitters. It’s like an earthquake: If you’re in California and suddenly a quake occurs, you think the world is ending. Everyone starts asking questions: “What do we do? Do we stay put? Do we go back into our homes?” Eventually, people do go back inside. It’s the same thing: People are staying on the sidelines to make sure that rates and the cost of doing business don’t change appreciably. It’s a wait-and-see kind of response.
CPN: When will things return to normal?
Lynn: Eventually—probably in weeks, not days—people will say the economy is fundamentally in good shape, productivity is pretty good and corporate profits are up and that money has to be invested. But before getting back in, people want to see stability.
CPN: There is a huge panic in the residential real estate sector. Why is the situation more serious for residential real estate than for commercial?
Lynn: Underwriting for residential was pretty lax. Builders were giving out loans to just about anybody. Now, that situation has gotten better, and it’s a good thing that home builders are slowing down the supply.
CPN: What about multi-family, particularly since the condominium craze has simmered down?
Lynn: Multi-family cap rates are the lowest of any sector. Pricing is for future demand coming from Echo Boomers and people who cannot afford to buy.
CPN: Will the commercial real estate industry escape this phase essentially unscathed?
Lynn: Real estate vacancies are declining and there is not an oversupply problem at all. All that bodes well.
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