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The old question, cash or credit, used to apply to gas stations. Today, regarding retail real estate, there’s no question: Cash is king. But just how much of it will be spent, and where, remains murky.

Highly leveraged companies such as Centro Properties and, more recently, General Growth Properties, have been looking at sales to reduce heavy debt. Given the lack of credit in the midst of what Senate Majority Leader Harry Reid dubbed “the greatest financial crisis since the Great Depression,” the prospect of selling major assets is challenging.

“Who knows [who will buy properties]? General Growth and Centro are in a totally different world from someone else,” says Lon Rubackin, managing partner of GFI Retail Services Group, based in New York City. “They need more than surgery; they would need Wall Street to come up with a new vehicle.”

Right now, deals are in a holding mode. Rubackin notes that, “Lenders are hoarding money. No deal is good enough. All I see are deals under $50 million by local banks and in insurance companies.”

But that doesn’t mean that funds aren’t available. “Right now, the market is abundant with equity,” says Bernard J. Haddigan, a managing director of Marcus & Millichap, Atlanta. “It is not abundant with debt. The leveraged buyer is out of the market.”

Much of that equity comes from funds created by professionals who were let go from debt fund jobs. But figuring out the price to pay for assets is the challenge, according to Patrick O’Meara, VP of Inland Mortgage Capital Corp., Oak Brook, Ill.

Still, he notes, there is a real disconnect between the asking price and what investors are willing to pay. Pricing will soften significantly for all but premium real estate, Haddigan added. Transaction velocity is off at least 50%. “Unless you really need to raise capital, you’re not going to sell,” Haddigan says.

Inland is actively lending in the market, albeit conservatively. The company is focusing on smaller deals, ranging from $10 million to $35 million, and is even looking at transactions of less than $10 million. But whereas the company might have made loans of 90% or even 100% of cost in the past, 70% to 75% is much more typical now. “We see this as an opportunity,” because the banks are out of the market, O’Meara says.

Shopping center developers and owners are not the only professionals affected by the current crunch. Small shop space expansion has come to a “screeching halt,” Haddigan says. Another concern is the turnover of leases as small shops come up for renewal in newer projects built during the 2002 to 2007 boom. Many had rents over market, sums that will be difficult to replace.

Nor will the situation change any time soon. Even when a bill passes, the result won’t be immediate, and the market will remain tight. “It will take time to go through all the different banks,” O’Meara says. “But once the bill is signed, it will provide a confidence boost.”

Still, estimates of when the overall market will turn around range from late 2009 to possibly as late as 2012. And the structure of deals will change in the meantime.

“Meanwhile, the world will change and the word syndication will come around again,” Rubackin says. “We might see more joint ventures, alliances and syndications.”

For the next few days, however, all will be watching the Congress. “At the end of the day, it’s boosting confidence in the financial markets,” O’Meara says. “It will break the frozen credit crunch. But it will take time. The question is who will get the money and what’s the price?”

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