Credit crisis keeps commercial property deals on hold.(IN SESSION)

Although the current economic crisis hinges largely on problems in the housing sector, nearly all financing has felt the crunch. Further consolidation in the financial markets due to bank failures and closing of investment houses put all types of lending at risk. The independent investment banking industry (once lead by Bear Stearns, Lehman Brothers and Merrill Lynch) is virtually gone. The continued failure of banks (IndyMac, Washington Mutual, and Wachovia) strains liquidity for all sectors--car loans, student loans, business loans, and of course real estate loans.

When financial markets are gripped by fear, one failure leads to another. Despite low defaults and well-performing credit instruments, credit to the commercial mortgage-backed securities (CMBS) market has almost completely stalled. While commercial markets hold steady with strong industry supply and demand, credit markets are frozen and the commercial mortgage-backed securities market is non-functioning. Without action to liquefy credit markets, new construction and development projects will most certainly be affected, and with them the potential for further job loss in this sector of the economy. Credit markets are terrorized by the fear that debt may be deemed less valuable shortly after it is issued. Commercial real estate deals are, for the most part, on hold these days as buyers and sellers wait for the credit crunch to ease and the economy to rebound, according to a report released in October by PricewaterhouseCoopers.

The Emergency Economic Stabilization Act of 2008 (EESA) is intended to allow financial institutions to rid themselves of "troubled assets" and resume regular lending activities. The law creates a Troubled Asset Relief Program (TARP) (described above) to allow the Treasury Department to purchase assets from financial institutions, allowing the financial institutions to clean up their balance sheets, and enabling them to infuse credit back into the market.

"Troubled Assets," as defined under the TARP program, include "residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability." As of November 13, 2008, Secretary Paulson moved the focus of TARP from buying troubled assets from financial institutions to focusing on the nation's struggling consumers.

NAR and IREM are fully engaged with the government agencies who are overseeing this new program.

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