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NEW YORK CITY-The future holds promise, but the present is a period of inertia aside from buying debt. That was the consensus of panelists at Wednesday’s Opportunity Fund Power Panel during the second annual RealShare Investment and Finance Summit here.

“If this isn’t a crash, I don’t know what is, at least in the lending environment,” said panelist John Jacobsson, managing partner of Apollo Real Estate Advisors. Paul Fox, managing director of Cerberus Real Estate, said he foresees more weakness in the commercial sectors in the near term, and noted that his firm sees the best opportunities at the moment in acquiring debt as opposed to properties. Similarly, Christopher Linkas, partner in Fortress Investment Group’s Drawbridge Special Opportunities Fund, observed, “I don’t see opportunity funds buying assets right now.”

The reasons for what moderator Jeffrey Lenobel called a “standoff” between sellers and opportunity fund buyers are all too familiar. As Linkas put it, real estate finance is coming off a phase where the perceived risk was quite low and the actual risk was “terrifying.” However, he said, the current credit environment offers opportunities for funds such as his.

Those opportunities could proliferate over the next several months in conjunction with an increase in distress situations, although Lenobel, chairman of the real estate department at Schulte Roth & Zabel, noted that there haven’t been many distressed opportunities yet. Loren Balsam, managing director of Perseus Realty Partners, noted that there are a good number of such opportunities in residential assets, while Linkas predicted a rise in commercial opportunities from an interim debt perspective.

“In 2009, whenever there’s real distress, you know we’ll all be looking,” Fox said. The trick, he added, is picking the right opportunities for acquisition.

Not that it’s simply a matter of identifying the opportunities and taking them. “Anybody who doesn’t think fund-raising has gotten more challenging is in for a real surprise,” said Marc Davidson, managing director of AEW Capital Management.

One aspect of potential deal-making that’s incomplete at the moment is levels of financing: Jacobsson said the senior piece of the capital stack is “not there” and someone needs to start making these loans again. It isn’t likely to happen right away, though. “Banks we all know and love are in a capital crisis themselves,” he said, adding that several overseas banks aren’t capital-constrained but they don’t know the territory here. In particular, Jacobsson said, some of the leading Japanese banks are well capitalized, “but I don’t see them jumping into the US market right now.”

Among domestic banks, Fox said he sees a push to clean up balance sheets by year’s end. Davidson said the industry needs to find the housing floor before conditions begin to stabilize. “We created these conditions over a long period of time,” he said. “We’re not going to cure them in a short period of time.”

Prior to the afternoon’s power panel, Jeff DeBoer, president and CEO of the Real Estate Roundtable, offered attendees a preview of what results to expect from the upcoming national elections. The Democrats are expected to pick up seats in the both the House and Senate, he said, while the outcome of the presidential race is far less certain. Regardless of whether John McCain or Barack Obama wins the election, “this industry will be in the cross-hairs” of lawmakers during the next Congressional session.

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