That delevering process has already gotten under way "big time" in the public markets, Vornado's president and CEO said Tuesday. The massive fund-raising that REITs such as Vornado undertook over the past 12 months often occurred at the expenses of stock pricing; Fascitelli said that at one point, nearly half of the 180 REITs registered with the Securities and Exchange Commission were selling shares at single-digit prices.

"The dilution that occurred was painful, but they did it," Fascitelli said. He called it "preventative medicine." The equivalent delevering on the private side will be far more gradual, he predicted.

While calling the government's leniency on extending commercial loans a "reasonably prudent" move to give banks some leeway, Fascitelli also held it partly responsible for putting off that inevitable day of reckoning. Another reason that matters haven't come to a head yet, he said, has been the challenge of price discovery in a market with few transactions to serve as comparables. "When people say loan to value, they know what the 'l' means, but they don't know what number the 'v' stands for," he quipped.

However, he predicted a potential flood of buying opportunities as beleaguered owners eventually realize that their properties' depressed fundamentals will stay challenged and values "won't pop back up." Fascitelli said the process of working through all of this would require "a year or two, or three."

In the meantime, he welcomed a return to more conservative underwriting. From a lender's perspective, a property's value is "an overstated concept," Fascitelli said. "It's all about the cash flow."

That more conservative approach will extend to securitization, which Fascitelli predicted will come back "stronger than anyone thinks." But the new model for CMBS will be "simpler" as well as stricter. "The mentality that 'I'll originate anything if I can sell it' will change," Fascitelli said, predicting that a sober approach to CMBS underwriting will probably be enforced by legislation requiring lenders to retain some degree of risk.

Instant Insights /

Fascitelli Sees 'Day of Reckoning' Ahead

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