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NEW YORK CITY-The most successful players in the current market will be the ones who go by the playbook that reflects present-day realities, including the heavy involvement of the federal government and a return to interest rates of 8% to 9%. That was the consensus of panelists in the aptly titled “Embracing Change” seminar presented Thursday by Ernst & Young’s real estate practice group.

While specific provisions of TALF and PPIP may raise some concerns, “This is the playing field,” advised Mark Grinis, global real estate partner at E&Y. “Those who figure out how to navigate it will be the most active.”

The panel’s sole participant from outside E&Y, Ginnie Mae president Joseph Murin, also sounded the theme of positive action. He downplayed concerns about a predicted rise in residential mortgage defaults as too generalized because they paint low-default markets with the same brush as those where the incidence is higher.

“We can spend our lives worrying about what’s coming or we can spend them seeing what we can do now,” Murin said. He noted that Ginnie Mae issued $90 billion in mortgage-backed securities for the first quarter of this year, compared to $38 billion for Q1 2008.

Murin noted that community banks have been supplying local markets with credit, although he added that this “grassroots rebuilding” hasn’t gotten much notice. In common with other panelists, he cautioned that the recovery would be gradual. “Unfortunately, we’re a society of immediate gratification,” he said. “We want the problem fixed right now. That ain’t gonna happen.” Instead, normality will return “one deal at a time.”

Waiting for a gradual recovery may seem like more of a tall order when, as moderator Mike Syers, leader of E&Y’s transaction real estate services, put it, “The commercial real estate environment has been a poster child for what’s happening in the economy.” And while some have called for a Resolution Trust Corp.-like entity to create a market, Joe Rubin, principal of E&Y’s transaction real estate services, said the RTC model doesn’t really apply today.

During the downturn of the late 1980s and early 1990s, Rubin pointed out, the RTC dealt primarily with permanent mortgages. Today, the array of loans, and their structures, are far more complex. Partly as a result, the current market has been slower in creation because the bid/ask gap is still too wide, Rubin said.

Some guidance on pricing has come in the form of revisions to FAS 157 which have clarified how distressed sales are interpreted, Grinis said. “But you can’t pin it all on accounting,” he said. Sooner or later, “the economics will pierce through.”

Looking at the Obama Administration’s myriad efforts to rev the economic engine, Grinis predicted that PPIP will be a successful program once there’s clarity on what buyers are willing to pay. Rubin noted that the extension of TALF to include new CMBS could take on greater significance when the first issuance through the program is made sometime after June 1.

Such federal programs are where leverage will be coming from, said Skip Curth, partner in E&Y’s structured finance advisory services. “Understanding where and how they work is where the opportunities are,” he said.

There may also be opportunities in buying troubled banks, particularly smaller regional ones, Grinis advised. Rick Solway, partner in E&Y’s real estate tax practice, cited the quick turnaround on the sale of Pasadena, CA-based IndyMac as a sign of what the FDIC can do.

To take advantage of these and other opportunities, Rubin advised, “The three things that everybody has to have are patience, realism and cash,” especially the latter. He noted that in both the residential and commercial spaces, the values to be found will be “very enticing.”

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