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Our economy has been in recession for more than 18 months now and for the past year our real estate fundamentals have been adversly affected. Investors are constantly asking me to show them all of the distressed properties that we are handling for sale. The fact is that everyone is looking for these assets but there is really not much of this product presently on the market.  A major reason why sales volume is down by as much as it is, is due to supply constraint as discretionary sellers feel that it is unwise to sell into this market. But, What about the sellers that have no choice but to sell? Many lenders fall into this category as the need for cash has left many of them seeking conversion of bad loans into capital. Stress has been evident in the market for quite a while so investors assume that distressed properties should be coming on the market to a significant degree. They have not yet and I will try to explain why this is the case.As real estate fundamentals have eroded, defaults have been increasing and many lenders have had to put themselves in a position to deal with nonpayments. Many of these lenders have been very busy dealing with balance sheet issues, dealing with regulators and dealing with the government’s TARP initiatives. These issues, while very important, had ”distracted”  lenders from addressing their defaulted loan issues.  It has only been for the past few months that lenders have been figuring out what their exposures are and have been analyzing all of their troubled loans. Workout divisions within the banks have been staffed up and there have been significant enhancements to personnel infrastructure to deal with ever increasing piles of loan files that need attention. These “distressed” assets have been accumulating in a huge pipeline which is chock full of distressed properties and until now, these assets have only been trickling into the market.We have brokered the sale of a few loans thus far in the cycle but are keenly aware of the potential supply which should reach the market in one fashion or another. Within the past 7 months we have provided lenders with valuations of several hundred nonperfoming loans and their corresponding underlying collateral. Our agents have identified several hundred additional properties which we believe are likely to go into default based upon the prices that were paid for them over the last few years and the amount of leverage that was placed on them. We are watching those asset very carefully.Many funds have been established to purchased distressed assets, whether these assets are notes or properties,  and the funds have not been all that active due to the lack of supply that exists. These funds are patiently waiting for their opportunities and these opportunities will come.We have seen distressed assets slowly coming onto the market in greater numbers and feel that the massive pipeline of these asssets will really start to open up during the third quarter of this year. We know that billions of dollars of these assets are in the pipeline and they will present a buying opportunity unlike anything we have seen since the early 1990s.In addition to the funds that have been formed, we have seen a resurgence of high net worth individuals and the old line New York families that have not been as active as invesstors backed by institutional capital during the past several years. These were the same buyers who made fortunes buying properties during the early 90s. We have also seen a resurgence of foreign interest on an individual investor basis. These foreign high net worth investors are coming into the market in numbers not seen since the mid 1980s. We believe this is due to the perception that prices are low and good values can be obtained today.Distressed assets exist because of prices that were too high and leverage that was too available in great abundance and real estate fundamentals have deteriorated.  These assets will consequently be a significant component of our marketplace for years to come as some of the distress will be caused by mortgage maturities which are spread over time. As these assets hit the market, investors will find opportunities and we will see market dynamics in which lenders and investors both end up winning. Lenders will be able to convert nonperforming assets to cash and investors will beef up their portfolios with great long term assets.

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