Capital Markets Panel: Not Easy to Deliver Deals

"There's pent-up demand to invest domestically, but there's no place to put it," Barry J. Olson with Archon Capital LP in Irving told the National Association of Industrial & Office Properties' monthly gathering at the Dallas Country Club in Highland Park. He says he's not seeing "more flow in distressed debt, but what we do see is a lot of sub-performing notes...and no exit strategy." As a result, note-buying from lenders is viewed as "one way to take care of the problem," he says.

The common thread to yesterday's session is the abundance of capital and the stiff competition to place it. Mark R. Gerigk with L&B Realty Advisors recalled a recent bidding war for a San Francisco property. He says L&B was willing to pony up $550,000 above the list, but a private investor took the purse by kicking up the ante by $750,000. "We can't even overpay and get it," he says. "Never before have I seen individuals outbidding pension funds."

Ted C. Norman Jr. with GMAC Capital Markets Institutional Advisors says the historic low interest rate "didn't create the demand, but it facilitated the demand." And though interest rates are certain to rise, cap rates will not go up in tandem, he says. Nonetheless, he echoed what others have been saying most of this year: "It's a good time to be a seller or a borrower."

Compass Bank's John H. Reichenbach went out on a limb predicting the pace of the rise in the one-month Libor, not just for this year, but several years out. A year ago, interest rates were 1.05% above Libor for short-term capital; today, it's 1.9%. By his calculations, the rate will hit 2.2% by year's end, 2.98% by the 2005 close, 3.57% by the end of '06 and 4.03% when 2007 draws to a close.

Should Libor go up, says Marion E. Hicks with GE Capital Access, it could spell trouble for structured finance. He didn't go into detail, just made it clear that "one of the fears is Libor will go up."

As part of yesterday's session, four $5,000 scholarships were awarded: Darcie Flatt, University of North Texas; Adam Loew, University of Texas; David Grissom, Southern Methodist University; and Christopher Halloran, Texas Christian University. Naiop also turned over a $15,000 check from its members and $5,000 donation from Chicago Title Co. to the Dallas County Community College's Rising Star Foundation, a financial aid program that guarantees a two-year post-secondary education to high school students graduating with a B average or higher from the Dallas County system.