From the opening keynote address by chairman Stan Ross of the USC Lusk Center for Real Estate through the sessions on finance and development to remarks by Lifetime Achievement Award recipient John Cushman, speakers representing virtually every facet of the commercial real estate world and every property type examined the real estate landscape for signs of what lies ahead. The day's discussions, which invariably turned to the implications of the credit crunch, included debates about whether buyers and sellers are acting or failing to act out of fear or uncertainty, what the prospects are for various property types and geographic markets, and mention of the maxim that in times like these, cash is king. And one member of the economics panel said that today's conditions will produce “a Darwinian herd-thinning event” in the commercial real estate world.

Possibly one of the most succinct summations of the situation came from Cushman, who advised the audience, “Don't panic, but don't turn a blind eye to the issues that merit concern.” Like Cushman, other speakers and panelists throughout the day suggested that real estate professionals today more than ever need to maintain a realistic perspective that acknowledges the problems facing the industry but also recognizes that downturns, like bull markets, eventually end.

Ross, for example, outlined a list of worrisome factors such as declining consumer confidence and slowing job growth, but he also pointed out positive forces such as the Federal Reserve's support for low short-term interest rates and the strength of industries like healthcare and technology. He pointed out that times like these present opportunities for well-financed investors to acquire distressed loans and foreclosed properties at a discount. Ross also cited the projected US and worldwide population growth that will ultimately represent immense new opportunities.

Principal Chris Thornberg of Beacon Economics, the most bearish of the economic panelists at last year's RealShare event, commented that he is “still relatively bearish,” citing cap rates that he says will be unsustainable without big rent increases that are unlikely in today's environment. Panel member Randall Zisler, chairman and CEO of Zisler Capital Partners, coined the comment that the industry is in for a “Darwinian herd-thinning event” because there are simply too many brokers, developers and others that got into the business during the boom times. Zisler forecast that the changing markets will produce “the largest transfer of wealth over the next two years since the RTC period,” a reference to the Resolution Trust Corp. that the US government created to liquidate failed savings and loans in the crash of the early 1990s.

Cushman referred to the earlier downturns too, pointing out that the industry has weathered conditions such as 20% interest rates in 1979-1980 and nationwide office vacancy rates approaching 17% after the overbuilding of the late 1980s. “We've been through worse conditions than this before, both as a nation and as an industry,” the Cushman & Wakefield chairman said.

A number of speakers commented that some aspects of the economic slowing and housing industry problems today actually work to their advantage. Robert Hart, president and CEO of KW Multifamily Management Group, pointed out that many former homeowners who have lost their properties to foreclosure are now moving to job centers and looking for apartments, a phenomenon that “has put upward pressure on rents” for apartments. Hart noted that KW's properties are all at 97% occupancy or better. Another multifamily panelist, senior vice president Greg Harris of Marcus & Millichap, commented that those specializing in apartments are “fortunate to be in the multifamily business.”

Panelists throughout the day acknowledged that deal flow has slowed, financing is difficult and, in the words of broker panel member Jim Kruse, a senior managing director with Grubb & Ellis, the “euphoria and hysteria” of the boom part of the cycle have been replaced by uncertainty. Al Pontius, SVP and managing director with Marcus & Millichap, cited the “change in the portfolio premium,” explaining that portfolios no longer command higher pricing per property than single assets, while president Rich Walter of Faris Lee Investments observed that deals under $10 million are less affected by the credit crunch than others because the bidders are “cash buyers who are still active.”

The panelists agreed that Orange County will struggle to recover from the subprime meltdown over the next couple of years because so much office space has been vacated by mortgage firms, while the Los Angeles office market will fare better. In a discussion of pricing, Bob Osbrink, executive vice president of transaction services for Grubb & Ellis, was one of many during the day to cite the gap between sellers' expectations and the prices that buyers are offering. “Sellers are still in denial,” Osbrink said. When the topic turned to whether rents will rise, fall or stabilize, Osbrink pointed out that, “It is clearly a market-by-market phenomenon. It's hard to make a general statement” about how rents will fare.

Speakers and panelists differed considerably in their views on when the current downturn will start back up, with projections ranging from the end of this year to mid-2009 and later. One of the economic panelists, president and CEO Jeff DeBoer of the Real Estate Roundtable, observed that this latest downturn after such a long bull market was proof that, “Those who said in the late 1990s that the business cycle had been repealed obviously were wrong.”

Thursday's conference, at the Westin Bonaventure Hotel in Downtown Los Angeles, was part of the annual RealShare Conference Series produced by Real Estate Media, publishers of GlobeSt.com as well as a group of print publications including Real Estate Forum and Real Estate Southern California. The event featured 11 panel sessions with a roster of 70 speakers, along with networking throughout the day and a networking cocktail hour following the conference.