"I don't think that this crisis has even hit the commercialmarket yet," he says. "When you consider all the securitized debtfloating around out there on the commercial side, and the typicaltwo- to four-year terms, all this debt that has put on the books in'03, '04, '05, '06 and '07 hasn't rolled yet. All that debt isgoing to be coming due, and that debt went pretty deep into thecapital stack on very inflated pricing."

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He adds, "The Fed is focused on the residential side, but theyaren't saying anything about commercial. There's some potentiallyscary stuff out there with the commercial mortgage debt."

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One worry: "Cap rates are going up," Pappas says. Pappas notesthat people need to come to realistic terms on the pricing ofproperty. "Everybody is saying this is a liquidity crisis," hesays. "This isn't a liquidity issue it's a pricing issue."

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Banks are looking at assets and pricing them going forward, andlooking at financing those assets at more traditional underwritingstandards.

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"I've got some large institutional clients out there right now,and the mortgage loans are coming in at 50% to 60% LTV," he notes."I think the issue we're facing in the economy is a pricing issue,everything has to deflate. Pricing just has to come down, you canthrow as much liquidity at this as you want."

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The time of loose underwriting, and low interested rates aregone, he adds. "The days of 4% interest rates are gone, or theyshould be gone," he says.

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This banking and lending fallout is striking the heart of theSouthland's economy: the twin ports of Los Angeles and Long Beach.Container traffic is expected to continue to fall due to ananticipated drop in exports now that the nation's major tradingpartners are feeling the economic impact of the lendingfallout.

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The retail fallout is obvious, with many big names hitting theskids, while the office market is suffering, particularly in OrangeCounty, which was so heavily dependent on real estate employment inthe mortgage arena, and the Inland Empire, where the housingfallout has perhaps been the worst.

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What about the $700 Federal bailout, won't that boot theSouthland's economy? Pappas says: "I don't think it will beenough."

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Bob Safai, president of Madison Partners in Los Angeles, agreeswith Pappas on the bailout.

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"I think it's a Band Aid on a cancerous situation," Safai says."There's so much that needs to get worked out. You have to let freemarkets fall to where they're going to fall."He adds, "I think thebailout is going to be a lot more than the $700 billion that'sbeing thrown out there."

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Safai sees first hand the squeeze being put on commercial realestate. In real estate, he says, "people are catatonic with fear.People cannot go out there and finance deals. It's kind of a fluidsituation, it's changing daily. Valuations are changing daily."

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But he notes that real estate, long-term, is a "seven-year,10-year, 12-year hold."And that means it's back to fundamentals."It's a really an interesting opportunity to buy things atdepressed prices," he says.

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