Investment banks could well continue to resist selling assets atdeep enough discounts -- certainly they haven't in any numbers thusfar. Investors, for their part, may decide the market has bottomedout before it actually does -- and pay too much for assets thathave more risk attached to them than first realized.

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That latter scenario is David Schechtman's biggest concern rightnow. A broker with Eastern Consolidated, he tells GlobeSt.com thatit is a question he constantly gets as he shows product in the NewYork area. "I can tell you people's number one fear is that valuestill has much further to slide."

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Much depends on the location of the asset, he continues."Outside of New York, the discounts are very deep and the time mayfinally be ripe for those to go to market. However in the tri-stateregion there remains a tremendous disconnect between buyers andlenders of non performing loans and assets." Banks that are holdingon to these assets are refusing to make the final – and necessary –cuts in price for trading to truly begin, he says.

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Some assets are so deep in negative territory it doesn't makesense to acquire them at any price, says Vic Faris, a managingdirector at the Cleveland-based boutique investment banking firmWestern Reserve Partners. "Land loans for residential housing, forexample," he tells GlobeSt.com. "Some will never get built –especially in the outer ring suburbs that will mean high commutingcosts."

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Retail can be another iffy prospect, he says. If a big boxretailer pulls out or goes bankrupt, it could result in severalother retailers leaving as well, he says.Faris agrees the bid-askspread is still too wide for much action to develop now -– but likemany in the industry he predicts that will change in Q4. "The bankswill be forced to start selling these assets then and will comedown in price to get at least something for these assets." Anotherproblem that will face these funds as they begin to deploy capitalis the lack of "quality" distressed assets, Jim Kelleher, SVP, CIOand director of acquisitions for the New Boston Fund, tellsGlobeSt.com. "There are relatively few quality distressed assetsthat are priced right now at a level that gives an investor adecent return for the work it will have to do to stabilize it."

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New Boston Fund doesn't have a dedicated fund for distressedassets; however it does acquire them under its value add funds, intheory at least. Distressed assets in Kelleher's view can rangefrom anything from bad loans, corporate excess properties, brokendevelopment deals, vacant properties to partner recaps. Tellingly,Kelleher says that the firm has not found anything that fits withits investment criteria in the last six months. To acquire such atransaction, he says, New Boston would have to feel it can addressthe project's risk through the firm's vertically integratedapproach.

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The good news is that some of the issues will be mitigated ifthe investor is willing to take a long-term view. Projects inFlorida and California that have been sidelined due the currenteconomic conditions, Adam Weissburg, partner with the real estatelaw firm Cox Castle & Nicholson in Los Angeles, tellsGlobeSt.com, "ultimately could be very successful -- just not intoday's market. The real issue to success is not the projectthemselves, but the willingness of the owners to 'land bank' for aperiod of time so that the market comes back. As such, 'quality'will not be the driver to many of these funds' deploying cash, butrather patience."

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