Financing key to 'making things happen.' (forecast and advice for New York, New York real estate market) (Mid-Year Review & Forecast, Section I) (Column)

The period of mourning is coming to a close. Our industry is poised for renewal, and the next few years promise to be an exciting time for the real estate market. Many companies that struggled to survive the real estate crash have remerged stronger and considerably wiser. They can now look forward to a new era of opportunity.

There are, however, some hurdles to overcome: Existing tax policies, bank regulation, and financing, the most crucial component of the real estate market's recovery. Unless banks are willing to make loans beyond those to blue-chip property owners, an upswing will be all but impossible to achieve. In addition, lenders will have to reconcile themselves to selling off their REOs -- at undesirable discounts, perhaps -- and get back to the business that d'etre and their main profit center: Lending. Although 1992 was a banner year for the banking industry, as a result of selling non-performing loans and assets gained through foreclosure--as well as through cutting costs by downsizing -- it is now time to get back to "the knitting" and make loans in order to earn fees.

Another hurdle the real estate industry must overcome is the constraints imposed by regulators. No matter how viable a deal, if it doesn't conform to the guidelines in place, lenders are apt to walk away from it. The fact is, many lenders today are spending too much time preparing for audits and too little time generating new business. They're preoccupied with juggling assets, instead of-- and this comes back to the first hurdle --eliminating the problem by selling off those assets and getting on with business.

The good news is, there is life after regulation. And it is lending that will breathe life into the real estate market. Lending promotes consumer spending, in addition to providing income for the banks. Even people who have the money to buy will not purchase property if they cannot borrow against assets, and owners cannot sell unless their prospective buyers can obtain financing. As more and more buyers find they are able to finance the purchase of properties, we will move into the next stage of recovery.

New York City's housing market looks promising as well. Opportunities abound for people who know how to operate multifamily properties, and who have the funds to spend on repairs and improvements. But again, this assumes that banks will broaden their base and lend to multi-family housing operators, rather than restrict themselves to financing a Park Avenue investment property.

The concept of co-ops, however, will remain problematic. Co-op conversions were once the wave of the future but not any more, for three reasons: Co-ops are not a national commodity; they are peculiar to the New York metropolitan area. In addition, there is no secondary market for co-ops; that is, unlike mortgages for houses and condominiums, the end loans cannot be sold off by lenders to Freddie Mac or Fannie Mac, for example. Finally, banks are reluctant to make loans unless sponsors achieve sales of at least 70 percent of the building, because when a loan is in default, the entire building is at stake. Condominiums do not suffer from any of these drawbacks and are, consequently, far more popular with both borrowers and lenders.

At GFC, we are observing opportunities in every sector of the residential and commercial markets. We're involved in sales of multi-family housing, shopping centers, single-family lots, and office buildings. We are assisting banks in disposing of a range of portfolios, and we are arranging financing for the purchasers. Since January, we have moved to new corporate headquarters and we've increased our staff by 35 additional people. For the second .half of 1993, we expect to continue our expansion, adding 50 more people to our staff.

The fallout from the 80's real estate excesses is old news. Today, investors are looking at current returns -- what's the cash flow right now? -- instead of speculating on how much a property will appreciate years from now. That change in focus is reflected in a more general change in attitude. In the 80s, people still held to the idea that if you worked hard, you could count on job security -- with an IBM, for instance, or with a bank. In the 90's, we experienced downsizing and cost cutting. And we found out people must create their own security, their own destiny. Nowhere is this borne out more than in the real estate industry, where the person with an entrepreneurial mindset succeeds, and individual persistence gets the payoff.