"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.

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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.

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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.

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"So I don't see a huge vacancy rate coming," said Mack. "But Ido see that New York office space is mispriced." In response to anaudience member's question following his presentation, Mackextended that characterization from the sale of office buildings tothe asking rents at many properties. "The rents of $100 to $150 persf have been achieved in only a very few buildings," he said,adding that even if landlords post three-figure rents, tenantsoften negotiate them down.

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If the US market is headed for a recession, Mack said, it willrecover more quickly than Europe. "Lenders there are completelyshut down," he said. Even in Asia, where national economies arequite strong, there has been some pullback on credit, he added.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.