[IMGCAP(2)]Leupp addressed a crowd of more than 1,000 inDowntown Los Angeles on Tuesday morning, where he and a group ofpanelists provided some realistic insight for 2010. The bad news isthat there are still some significant headwinds due to consumerdebt and a tremendous amount of government debt, said Hessam Nadji,managing director of research services at Marcus & Millichap."But there is a lot of positive news," he added. "The evidence ofthe actual recovery keeps piling up…This will be a staging and atransitional year."

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Dr. Sam Chandan, global chief economist and executive vicepresident of Real Capital Analytics, explained that one of hismajor concerns looking forward is government intervention. "It isunclear if there is enough consumer confidence without governmentintervention to sustain the kind of growth that will drive newemployment," he said. But the more immediate concern, he said, "isthe way that we balance or do not balance budgets in the US."

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No one knows what is going to happen going forward, said StephenCauley, director of research at the Richard S. Ziman Center forReal Estate at UCLA, who worries about the world's financialmarkets, policy risks and global risks. Cauley considered the otherpanelists a bit too optimistic, noting: "We still have asubstantially long period of recovery ahead of us."

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Wayne Yamano, senior manager of John Burns Real EstateConsulting, who focuses on the housing market, said that thetremendous amount of government intervention has really helped. "Weare optimistic that 2009 will have been the bottom of the housingmarket," he said. "We don't see any more downward pressure onprices because they are already so low." He pointed out that thereare about five million units of shadow inventory across thecountry, mostly localized in the states that you would consider theusual suspects such as California, Nevada, and Florida amongothers. "Investors today aren't the flippers that created thebubble," he said, "they are not going to be the distressed sellersof tomorrow."

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As far as financing for homebuilders goes, Yamano said it is avery different ballgame for public homebuilders and for privatehomebuilders. "Public homebuilders are really the only ones thatcan get financing."

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According to Nadji, retail sales stabilized much faster thanexpected, and no one predicted that capital markets would stabilizeas quickly as they did. "I am not advocating unjust optimism, butyou cannot ignore positive numbers," he said. "We cannot sit backand basically stay in our caves…those that take advantage of marketdislocation take the risk first and we have to take risks, butcalculated ones."

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Nadji added that "if you look at the natural drivers of theeconomy, they are beginning to fall into place. The question iswhether we will nurture them."

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Following the economic update panel, Scott Farb, managingprincipal of the Reznick Group, served as moderator of the "TwoSides of the Story-Economic Debate" with Ethan Penner, executivemanaging director of CBRE Investors, and Chris Thornberg,co-founder and principal of Beacon Economics. First on the list todiscuss was the outlook for the real estate equity capital marketsfor 2010. "We are in an interesting time because it does feel likethere is too much money chasing deals…it is like there is a feedingfrenzy and there is a sense that there is too much capital in themarket" said Penner. "It feels like you need to rush to get yourmoney to work, but it is a joke because there is very little moneyout there."

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Investors are licking their wounds and coming back to themarket, Penner continued. "I think that capital is being formed andconfidence is being rebuilt." He, like other panelists throughoutthe day, sees 2010 as a different world than 2009, and movingtoward the end of 2010, Penner expects the amount of capital thatwill flow from institutions will be significant.

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"If you could raise money today, the question is, what would youdo with it? In a sense, it's not so much that you can't raisecapital, it is that there is no point until the banks relinquishsome of those underwater assets," said Thornberg. "Why raisecapital when there is nothing to buy… now isn't the time… it is tooearly."

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Penner noted that a month ago, or even a week-and-a-half ago, hemight have agreed with Thornberg's comment, but explained that youcan't be pessimistic forever. "I have a sense that there is moreregulatory pressure now on banks," he said. "I foresee that thisperiod of inactivity will lead to a level of increasedactivity."

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Some of that level of increased activity may ultimately resultin a resurgence of CMBS as a source of financing for commercialreal estate, but Thornberg warned that, "It took the CMBS market totruly create a bubble and then a collapse." He said that as CMBSreturns, it should be strictly regulated to prevent a recurrence.For now, he said, there is plenty of debt available to do the dealsthat make economic sense.

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Penner said that if and when the CMBS market returns, it will beon a considerably smaller scale than it was at its peak. In otherwords, there is a place for CMBS in the real estate world, but itis a smaller space than it once was—and that is as it shouldbe.

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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.