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CHICAGO-Not many could have predicted how chilly the commercial real estate climate could get in a year, or the unique challenges the industry faces in 2002. As a result, an industry panel opening asset management day at the 95th Building Owners and Managers Association convention at McCormick Place certainly was one of the most bearish of any in recent years.

“We’re moving through a business trauma in this country that we’ve never seen before,” says Bruce Mosler, president of US operations for Cushman & Wakefield, Inc. He adds the market probably has not hit bottom, and a volatility may stretch beyond 2002.

“I don’t think we’re overly optimistic that happy days are here again,” adds Transwestern Investments Co. president and chief executive officer Stephen Quazzo. “Real estate needs job growth, and we need to put bodies in offices, apartments and hotel rooms…There’s still a tremendous demand problem out there.”

While the economy was sliding before Sept. 11, terrorism insurance became an issue, panelists agree. “This new issue that didn’t even exist a year ago is a significant threat to our industry,” warns outgoing BOMA president Sherwood Johnston III. He urges members to e-mail their Congressmen and senators to reconcile differences in their clashing versions to a back-up insurance plan.

However, another adverse post-Sept. 11 development is the fallout from the Enron-Andersen debacle. “Let’s not underestimate what Enron and (Andersen) have done for corporate America,” Mosler says. “It’s affected every corporate balance sheet.”

Those clouds of doubt over balance sheets and earnings reports have put a crimp in demand. “What demand that is out there today is all value-driven,” observes Trizec Properties, Inc. senior vice president Stephen Budorick, whose portfolio includes leasing and management of Sears Tower.

Indeed, one silver lining can be found in the sublease market, where bargain hunters are creating activity, Mosler notes. Still, it will take another six months to “push through” the sublease space on the market before direct space can be seen, he adds.

Another silver lining remains an abundance of capital, which is exiting the stock market for the relatively safe haven of real estate. While “slugging it out to keep tenants,” Quazzo’s firm continues to be active buyers, at least in spirit. But after being shut out from May to December 2001, Transwestern has closed $300 million in deals this year, mostly in the office sector, he reports.

It hasn’t been easy, Quazzo adds. “The trick is to find sellers who literally have to get out,” he advises. Adds Merrill Lynch Capital managing director of real estate finance John C. Petrovski, “More entrepreneurs are frustrated today trying to find deals that work on their numbers.”

In another session sponsored by Real Estate Media Monday, Cushman & Wakefield analytics director Charles W. Harry Jr. notes investors have limited options. Meanwhile, leasing demand is expected to rebound, he reports. He agrees with other panelists’ take on the sublease market. “The real phenomenon in the downturn of this market is the escalation of sublease space,” he adds.

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