In some ways, the climate in the post-Wall Street meltdown marks the end of an era, said McCain, chief investment strategist at the Cleveland-based bank. It also follows the typical pattern of any economic cycle, which includes a topping-out, decline, bottoming-out and, eventually, a rally. The bottoming-out phase, he said, "seems to be where we are right now." The question is how long it will take to "wash out the excesses and prepare for the next rally."

McCain's view that the economy is still looking for the bottom was shared from a real estate perspective by panelist Michael Newman. "What we're seeing now is just the tip of the iceberg," said Newman, president and CEO of Golub & Co., based in Chicago. The owner and developer observed that the challenges faced by retail tenants are now starting to spread into the office sector.

Also on the rise will be distressed debt. Newman noted that there haven't been many reports of defaults in the middle market; so far it's either been loans on the order of $10 million to $20 million or the troubles faced by large-scale owners and developers such as General Growth Properties and WCI. That will change during the course of 2009.

In the current market especially, Newman noted that "it's all about the property, not the paper. If the real estate isn't performing, it doesn't matter how the debt is going to be worked out." For properties with credit tenants and otherwise solid fundamentals, deals can still get done--or at very least refinanced. "We have had no problem with our in-place deals."

He noted that no recovery is going to happen without the involvement of consumers, and right now housing prices have them in a quandary. McCain said a stabilization of residential prices will boost consumer confidence, but that's not going to be seen for a while.

In the meantime, the retail sector is feeling the pinch, noted Craig Rowley, VP and national practice leader of retail at the Dallas-based Hay Group. The reining in of consumer spending has clouded retailers' crystal balls: "This is the only recession I've been in where my clients cannot predict next month's sales."

One positive effect of the retail climate is that it will result in better retailers, more focused on their customers, Rowley predicted. At present, his clients' short-term plans are focused on controlling costs, while long-term they're trying to figure out how to become more competitive. The store closings that Rowley sees continuing will also have an upside. "For the past 15 years, we've been over-stored."

BDO Consulting's Ralph Fatigate said the downturn will likely result in stricter regulation of the securities industry and more oversight of mortgage lenders. One reason for this is the rise in white-collar crime, which Fatigate observes as the head of BDO's mortgage lending investigative unit. He predicted an uptick in fraud in the financial services industry, especially as many of the recent layoffs have occurred in that sector. "Do I think the Bernard Madoff case will be the end of it? Absolutely not."

Another way in which the Wall Street meltdown has implications for real estate is in the area of employment. Executive recruiter Dale Winston, CEO of Battalia Winston, said the downturn will cause many to leave the financial sector and look for other avenues. Healthcare delivery is a strong growth area, as are digital media and infrastructure-related companies. The Thursday morning panel was convened by BlissPR, a locally based public relations firm.

Instant Insights /

Experts: Economy in Bottoming-Out Phase

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