Rang says that with the market entering the third year of theglobal economic dislocation stemming from the credit crisis, thereare clear signs we are at last entering a period of stabilization."The general expectation is that we're looking at a period of atleast three to five years of slow to moderate economic growth thatwill be mirrored in the real estate sector, but is this really sucha bad thing?" he asks. "Looking back at the peak of the market boomperiod in 2005 to 2007, it now seems to have been an aberrationfrom the long-term trend - created by the availability of cheapmoney and the entry of new types of players into real estate."


These new entries approached investments from the perspective offinancial structures, rather than from a deep understanding ofunderlying bricks and mortar. This profound correction is probablygood for the long-term health of the sector, he adds. Theincreasing cost of debt, along with tougher bank capitalrequirements, will mean greater equity components for deals,resulting in much more moderate pricing.


In the early 1990s, the Latin American debt crisis was a 'lostdecade' after the eruption of the crisis in 1982 when Mexicoannounced it could not honor its obligations, he says. "Severalsolutions were introduced to tackle the perceived problem ofliquidity rather than solvency in these economies, but nonesucceeded as it became clear countries were not growing out of debtand, in fact, were becoming more indebted. It was only after theintroduction of the Brady Plan in 1989 that Latin America found aroad out of its debt crisis."


Rang continues, "The success of the Brady Plan hinged on itsmarket-based solution to the problem; it allowed banks to swaptheir loans for discounted and par bonds provided they alsosupplied new money to the countries concerned. They thus avoidedhaving to write the debt down to market value on books. Given thesubstantial overhang of real estate debt, in particular CMBS, aBrady Plan equivalent for property could be an interestingsolution. If a way could be found with government backing todiscount this debt to reflect long-term underlying property valuesand avoid potentially excessive impairment to market value, itcould attract financially-driven investors back into the realestate market but on a more sound basis and with a betterunderstanding of underlying risks. It's often that we find thesolutions for tomorrow in the past. But that might be the case thistime around if we don't want to end-up in the real estateinvestment market of the 1980s, or even the 1970s."

AllanSaundersonis a managing editor of Property FinanceEurope and a contributor to GlobeSt.com.

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