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If that old expression — a recession is when your neighbor loses a job, a depression is when you lose it – is true, then the economy has entered into recession, at least according to Bill Hughes’ world. As SVP and managing director of Marcus & Millichap Capital Corp., Hughes monitors both real estate capital markets and the overall economy very closely. He also has a friend who was just laid off from a major investment bank.

“To state the obvious, there is substantial turmoil with Wall Street banks now,” he tells GlobeSt.com, and calm is unlikely to prevail until the economy and credit markets reach some equilibrium. Layoffs are one byproduct of the uncertainty among the investment banks; another is an inability to finance deals, at least in the short run, he says. Hughes spoke with GlobeSt.com about the economy, the recent interest rate cuts by the Federal Reserve and how all of this will affect commercial real estate financing.

GlobeSt.com: What are your thoughts on the recent interest rate cuts by the Federal Reserve Board? (http://www.globest.com/news/1078_1078/washington/167653-1.html)

Hughes: [Federal Reserve chairman Ben] Bernanke cutting rates – especially the discount rate – will be a big help in bringing the economy to a more positive level.

GlobeSt.com: Do you think we are in a recession?

Hughes: It feels like one but technically it is not. I think that now that the Fed is in the game, aggressively trying to help turn the economy around, if we do go into recession it won’t be as deep or as long as it might have been. Cutting the discount rate adds liquidity to the marketplace. Cutting the feds fund rate keeps borrowing costs low and will create some liquidity. Hopefully it will stem the write-down by investment banks. It will also allow investor confidence to improve.

GlobeSt.com: So how are commercial real estate deals getting financed now that Wall Street is sitting on the sidelines for all intents?

Hughes: Commercial banks, credit unions, life insurance companies and agency lenders are all still active in the market. There are also private investors willing to invest in deals—call it soft money if you will, but high net worth individuals are a growing source of finance for deals.

GlobeSt.com: But it’s still not enough.

Hughes: Oh no. Generally only the deals with good quality assets are being financed. If you have a deal in a tertiary market or one with questionable revenue streams, that won’t get financed or it will be very hard. Or even what might have been a respectable deal in the past – say a property that caters to smaller tenants; if it doesn’t have strong historical operating numbers or the borrower is cash constrained, that probably wouldn’t get financed either. That is the reality now.

GlobeSt.com: Do you think sellers are beginning to accept these realities now? For a while, there was a standoff between buyers that didn’t want to pay pre-August prices, and sellers that didn’t want to accept that those prices are probably not coming back.

Hughes: That is hard to say. I can tell you that sellers are beginning to see they have to be more ingenious in this market and perhaps carry some paper back if they want to close a deal.

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