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and you have had six when I say success
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notable kind of legendary success in the
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previous two big macro recessions after
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the 73 75 and immediately after the 80
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82 ish recession and in the great real
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estate recession which was not a great
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macro recession but was a great real
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estate recession of the early 80s early
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90s
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how do you stack up how the
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opportunities in real estate are
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different than those episodes or the
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same and how do you think this plays out
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well first of all you couldn't be more
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different
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this time around the correlation was
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across all industries all countries all
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over the world so whereas in previous
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times when real estate was you know the
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crippled one and the rest of the economy
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was doing okay the banks could come in
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and foreclose and they did and take
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action and and the result was that you
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know I remember in 1990 or 1974 for that
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matter I mean it was you've literally
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sit there and say you know how many of
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these can I afford to look at you know
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because there was so much now
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fast-forward to now first of all you got
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pretend and extent you know the lenders
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are not foreclosing and they might
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foreclosing because they really have
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enough problems and as long as they are
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quote-unquote kept current which by the
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way means that interest rates are kept
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roughly where they are today
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I think nobody will foreclose nobody
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will do anything other than let them
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that let them well the prime is it's a
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LIBOR being so low you can yeah you also
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have to remember that between 2000 and
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2007 60 % of all the institutional real
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estate in America was sold
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and and and all of it was over leveraged
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so everybody who quote bought during
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that period to large extent is
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underwater there's a change yeah so
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whereas in 1990 or 1975 we were quote
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buying everything in sight and we were
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just standing there you know and and the
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stuff was come in over the transom today
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you have a very very different scenario
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first of all you have the banks
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I'm not going to foreclose if the banks
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don't foreclose I don't think that the
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owners are going to necessarily provide
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a gratuitous deed-in-lieu unless they
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have to do a big feeding of a bad
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problem well unless they have no choice
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okay so the bottom line is that anybody
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whose can generate enough income to
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carry she's literally not gonna move
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sure and what I think happens is that
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because ultimately real estate is all
00:03:30
about supply and demand so for example
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in the 70s you know everybody talked
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about every dollar he talks about
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inflation being about real estate be a
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great inflation hedge but in the 70s we
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had double-digit inflation and we had
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reducing values in real estate how is
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that possible it's possible because it
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was oversupply I believe that over the
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next 24 months pretty much everything
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that is currently vacant will release
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but it will release at 20 30 35 percent
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lower rates than the original quote
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asking rates that will produce a 2012 or
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2013 office building that's full that's
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the good news but in fact is producing
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30 percent less than 40 percent less
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just cash flow than before you know and
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the result at that point
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is the dilution is going to be the
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solution ah
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and so if you're the owner right now you
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have a hope certificate and nothing more
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you're gonna have to bring in somebody
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who puts up capital you know 12 or 11
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and they use that capital to pay down
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the debt they get the lion's share of
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the ownership and now you have a
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quote-unquote longer-term Hope
00:05:04
certificate although until you're forced
00:05:05
to do that if your cash flowing because
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of a low LIBOR you just things like
00:05:09
first stall that day well but the answer
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is come 11 or come twelve the banking
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system will be very different than it is
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today and the motivation for pretend and
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extend will have evaporated
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you
