Banks' Purse Strings Remain Tight

Real Estate Market Holds its Breath

By James Chappell

Managing Director

STR Global

LONDON--I was at an industry event last night, one that we present our data at every year.

The event—like most, it seems—concentrates on the real estate side of the business and is generally a pretty good barometer of confidence in the industry.

It was a good mix of owners, developers, asset managers, lawyers, consultants and agents, with a few operators thrown in. I noticed there were far fewer bankers than last year, but I suppose that is a sign of the times.

What a difference a year makes. Or even six months, for that matter. I remember the event at the beginning of 2008, where there was a sense of expectation that some kind of correction was inevitable, but nobody knew how much or when.

The main issue then, as I remember, was the gap between seller expectations and buyer valuation.

The owning community was convinced that the kinds of levels that we had experienced in 2005-2006 were still possible, but was unable to find any buyers that agreed with that, so the market was stuck in limbo with both sides unable to meet.

The irony about what has happened since is that deals are there to be had, but financing for the purchases is unavailable.

This is a great example of what is happening in the wider economy, as the banks, scared of what is still yet to come, are ignoring the urgings of the government and are not loosening the purse strings.

Those companies that are sitting on cash can potentially do unleveraged deals, but how attractive is that?

That, I think, is the real challenge for the Investment community, and until the liquidity returns, it is hard to see anything changing.

Many agencies have seen the writing on the wall and have already eliminated wholesale redundancies and, in some cases, closed agency departments altogether.

Valuations remain, but without much to value.