Recolumn/25"/LK1st/mark2nd

By ELIZABETH HAYES

Staff Reporter

The Business Journal's recent third-quarter real estate report examined the industry's future in Los Angeles, paying specific attention to what kind of development will take place and where it will occur.

But what about the future of deal making and financing? Given the uncertainties of the last few weeks including tightening credit and renegotiated deals it's anyone's guess.

"The cycle seems to have changed before we ever overbuilt," said David Feingold, managing director of Citicorp Real Estate Inc. in Los Angeles. "This is a financial phenomenon, not a real estate or hard-asset phenomenon."

Yet present turmoil aside, several local real estate prognosticators agree on a few things: Wall Street, real estate investment trusts and good old-fashioned deal making are here to stay and brokers are not an endangered species.

"Public markets will continue to grow, but you'll see a bigger, more sophisticated private equity market. You may even see private equity offerings online," said Stan Ross, vice chair and managing partner at E & Y; Kenneth Leventhal Real Estate Group.

Maybe so, but don't count out public financing yet, said Bowen McCoy, owner of Buzz McCoy Associates, which does strategic counseling for real estate companies.

In the next 10 to 15 years, "public markets will be even more important" than they are today, according to McCoy. There could be $200 billion a year of real estate financing nationally through the public markets, he said. (By contrast, the first six months of 1998 saw $30 billion worth of transactions in commercial mortgage-backed securities.)

The excesses of the '80s, when borrowers easily could get loans to cover virtually all the costs of a real estate development, have resulted in a far more disciplined market, said David Blenko, managing director of El Segundo-based Haverford Financial.

And Blenko believes such discipline will increase, as large lenders specialize in the less risky loan pieces, as opposed to the generally riskier equity portion of a deal.

"In five to 10 years, there are going to be big commodity debt sources, maybe conduits or Wall Street people, maybe banks," Blenko said.

REITs and Wall Street also will act as governors to prevent overbuilding, because they are accountable to shareholders, said Lew Horne, L.A. regional manager with CB Richard Ellis.

"That influence will make for a more stable and healthy real estate environment in the future," Horne said.

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