conservatorship

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Bacon appeared as a guest speaker at CityScape USA's closing, athree-day event that attracted investors, developers, architects,designers and consultants in the real estate industry. He did notaddress specifics behind the number of stepsthat need to be taken in both the short and long term, nor did headdress further specifics. However, he did address where thingscurrently stand, and said he is sure that "we will get throughthis," when speaking about the current state of the economy.

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"Fannie Mae is a unique animal," he said. The government'sconservatorship was done to ensure that Fannie Mae and Freddie Maccan provide liquidity at a time of stress in the markets, heexplained. "The government is committed to making us continue towork, they are a stabilizing factor. …The ability of someone toprovide liquidity in this market is essential."

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Although at first, the initialassessment--both by the larger global financial communityand the commercial real estate industry specifically--was one ofcautious approval, Bacon said that things are looking positive,pointing to spreads already tightening on debt. "It still isn'troses and honey," he said. "There is still a concern." Baconexpects to see home prices decline 9% this year, but said thatfundamentals are on our side. "Before, there was too much risk onloans and consumers didn't know what they were getting themselvesinto," he said, but people have learned.

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Bacon did express concerns about job growth, recession, rate oftransactions, and acts of God—pointing to Katrina. "There is agreat divide between buyers and sellers because of cap rates," hesaid, "which says a lot about the state of the market. …Cap ratesare edging north of debt markets." Bacon explained that although hedoesn't know all and see all as far as when things will hit bottom,he said that California, for example, should expect to see abottoming out in the next year due to high prices. Florida, hesaid, which had building driven by speculation and perceiveddemand, will take longer to settle out because it isn't only aboutpricing. "It is about property type and location," he said. "It ismismatched and will take longer to figure itself out." Baconpointed to the many backlogged foreclosed loans in Floridapresenting one of the many issues that needs figuring out.

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Bacon said the biggest surprise to him in the whole creditcrisis situation, was the breakdown in risk management. "Peoplecreated complex securities and they didn't sell," he said. "I wassurprised to see that happen. I was surprised they would focus somuch on the return that they forgot about the risk." The bottomline, Bacon said, is that yes, there is reason to be concernedabout the state of the credit market, but when you start dissectingit, long-term fundamentals are good, and the US government decidedthey wanted to act. "The result, I believe, is that there will bestrong liquidity. Fannie Mae and Freddie Mac will bring stabilityto the market." Bacon hopes to rekindle optimism and urges theindustry to step back in and "take advantage of the wonderfulopportunities."

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Natalie Dolce

Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.