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January 9, 2009  

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In all economic crises, we expect a few well-capitalized individuals to snap up distressed assets and emerge ahead of the pack; so, is it time? Scott Price and Marc McCauley, RCLCO consultants by day, G'town real estate profs by night, advise: "Keep waiting."


Marc, right, says a recent survey of ULI members reveals less than 5% think they'll be "distressed sellers" in the next 12 months. Most call themselves "holders," with a large share describing themselves as buyers. Despite RCLCO consulting on over 300 distressed assets in large scale projects in '08, the sense among the community is it's the other guy that's failing. Marc figures optimism will wane in '09, especially as banks take a harder look at loan portfolios and the buy/sell price gap of distressed assets is reduced. Given that, a greater movement of distressed properties into the marketplace is a logical next step, and eventual freeing up of debt will allow equity to scoop up good deals. So, buyers, keep that powder dry.

Crystal City

Scott switched from RCLCO client to employee, joining from the Artery Group, to specialize in workouts and distressed assets. He also has significant "grey hair" from his experiences doing workouts in the early 1990s, an era his under-40 G'town students conveniently don't remember. He's finding banks are willing to negotiate with distressed owners, as long as the owners don't offer a "business plan of hope." (Leave that to the politicians.) His advice: Be honest. Times are bleak, but realistic, market-driven analysis, and a sound strategy to monetize troubled assets go a long way to making the conversation between banks and owners a productive one.



Once we get started with academia, we can't stop. Margaret McFarland, Director of the University of Maryland's Colvin Institute of Real Estate Development, even let us capture the iconic professorial cluttered on her desk. She specializes in housing, and says, "Excess inventory is a result of new homes that don't match demographic trends, particularly in the exurbs." The prototypical nuclear family is declining. By 2025 only 28% of households will have children, and 34% of the growth in households between now and 2025 will be one-person households. But home size and type (sale vs. rental) bear little resemblance to the jobs and wages in particular areas, exacerbating the affordability problem.


She adds: "Indeed, while affordable housing initiatives for the elderly, disabled and poor are important, housing for service level and moderate income jobs (teachers, fireman and nurses) remains an area where national, state, and local government solutions are severely lacking. (Note: the student-made design she's standing with, linking Rosslyn and Roosevelt Island, took first place at GWU's 2008 Real Estate Investment Case Competition.)


Not to drop names, but we dined last night at Teatro Goldoni with singing legend Dionne Warwick. (We're sure she's telling people whom she dined with.)  She was in town, as you can see from her tee shirt, because she's getting excited about the inauguration. We'll justify putting this tidbit in Real Estate by telling you about the new restaurant plans of Teatro owner Michael Kosmides, right (here with girlfriend Erica Patton). With business partner Jose Garcia, Michael's leasing 8,000 SF (which is a lot) within two blocks of his present place (we're trying to create an air of mystery, folks) for a Mediterranean eatery that will feature live videos of sunrises from different parts of the world. It'll have 150 seats indoors and 120 outside on a large terrace, and hopes to open by Labor Day.  

Reznick Group
Arent Fox
Cardinal Bank
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