"We're sitting on the sidelines in the equity business, and Ithink that is the most telling sign" of how Apollo views currentmarket conditions, Mack said. He noted that out of $3.2 trillion ofdebt outstanding in commercial real estate, 10% is mezzanine and25% of the mezz debt, or approximately $77.5 billion, will matureeach year.

Mack, who's responsible for new investments and investmentmanagement at Apollo, aligned himself with those who believe"things are going to get worse before they get better." He added,however, that this presents many opportunities for lenders to makeprudent loans with equally prudent spreads.

The uncertainty in the market has led to mixed signals in avariety of areas, among them the question of whether the US isheaded toward a recession. Mack said he believes it is, but addedthat he doesn't think the effects of a recession will translateinto substantial increases in the Manhattan office vacancy rate.The last time major financial institutions gave up a lot of spacein Manhattan, in the downturn of the late 1980s and early 1990s,they soon came to regret it, he said.