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RealShare ExclusiveWASHINGTON, DC-When Brendan Owen, chief leasing officer of Vornado/Charles E. Smith, requests a security deposit from a tenant in one of the company’s many office buildings, it is to be in the form of a letter of credit. Cash may be king, he says, but it also places a landlord in the same queue as other creditors should a tenant go bankrupt.

There are many ways in which Vornado/Charles E. Smith’s leasing strategies have adjusted to reflect the economic times, according to Owen. It doesn’t necessarily rely just on a tenant’s or prospective tenant’s balance sheet, made his comments before a panel at RealShare Washington DC’s annual conference, held Wednesday in the District’s Grand Hyatt. “We go beyond that and look at the business model.”

Besides providing useful guidance in leasing structures, the comments also illustrated a deeper trend that repeated itself throughout the day: not surprisingly, the economic times are reshaping almost every aspect of the CRE business, from using LCs to secure a tenant lease to finding opportunistic yields in Super Duper CMBS to shifting away from development in order to play in the debt market.

Even workouts, once a carefully calibrated dance between lender and hat-in-hand borrower, have been turned inside out. Increasingly lenders are finding they must put these traditional roles, not to mention loan documentation, if they want to salvage the value of a property, John Tenuta, director of First Oxford Corp. says.

The most telling examples, though, came from developers-turned-loan-investors and vice versa. Esko Korhonen, is partner with Federal Capital Partners, a company known for its sweet spot of value-add redevelopment. But now it is far more likely to invest in loans, he said. “We see a lot of opportunity – significant opportunity – in loan purchases over the next 24 months.” David Soares, president and CEO of Lexden Capital is another example, telling the audience he is “looking at JV with local private operators” in which Lexden would provide the debt.

Mark Porter, managing director of Shorenstein Co. reports that the company “has purchased $700 million in debt. These notes are providing 20% unlevered yields – we wouldn’t do it for any less.” Shorenstein is also trying to buy back its own debt, at a haircut, of course – a trend that is rapidly gaining popularity among solid borrowers and stretched lenders alike.

ING Clarion Capital, for its part, has traditionally invested up and down the capital stack – so it is not departing too far from its traditional business model. Still, though, the economy is, not surprisingly, having an impact on its investment strategies, Timothy Zietara, SVP of ING Clarion Capital, says. “We have been bidding on whole loans but we still see the best opportunities in CMBS — AAA, Super Duper securities that are yielding between 15% to 17%.”

Patrick McGlohn, an associate with Prudential Mortgage Capital Co., tells of new activity, or rather non-activity, at the life insurer. “Life money will be hard to put out this year,” he says. Indeed there has been much industry hand-wringing over the allocations life insurers have set for 2009; never an aggressive source of capital, life insurance companies have shown every sign of pulling back from the real estate markets this year.

The government has been a huge draw for these and other firms; many have increased their exposure to government deals and forged new ties with agencies such as the Housing and Urban Development Agency. Prudential, for example, is willing to invest in construction financing, McGlohn says. “We did one deal based on a 15-year lease to the government.” It also backed an $800 million HUD loan on a hospital in the Northeast, he added.

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