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Wednesday, February 10, 2010

Q&A: NRC Realty's Evan Gladstone


Evan Gladstone is the founder and Executive Managing Director of NRC Realty & Capital Advisors, LLC which began its operations in 1989 as National Real Estate Clearinghouse, Inc. Under Mr. Gladstone's guidance, NRC became one of the Resolution Trust Company's (RTC) major auction and sealed bid contractors selling nearly one billion in commercial and residential real estate from 1990 to 1994.

IREJ: Where do you think we are in the commercial real estate cycle? Is the worst behind us or is the worst yet to come?

EG: This feels to me like a transitional moment. We may be approaching the bottom. If unemployment continues to be severe and the economic forces out there don't radically change, we could see more of a decline. The basic economics of many asset classes in real estate were challenged in this last recession. Circuit City and Linens and Things, which investors had valued as credit tenants and were willing to do deals at low cap rates with, blew up entirely. It is really undetermined as to what investors will require to get deals started again. Cap rates are going up even as perceived risk is increasing as well.

IREJ: When this passes will investors look at those institutions standing as the real deal or will they have a very critical eye with every potential partner?

EG: During the bubble the investors tended to look at the credit rather than the underlying asset value. If the credit was good and the lease rate was high, they would accept the deal, where if you had that property untenanted it would be worth substantially less. If your deal is worth $10 million with Walgreens and it fails, is your deal with $5 million? The Warren Buffet comment is 'when the tide goes out you see who is now wearing a bathing suit." That happened all over the place in the real estate industry. Now investors are looking at sticks and bricks value. They are looking at the real estate value underlying the lease. Rents were tracking because of the credit of the tenant and not the underlying real estate. When you loose your tenant--even one you consider a safe tenant-- that shocked the market place.

IREJ: With banks extending loans this far, will they be more willing to take write downs perhaps this year as they have had chances to shore up their balance sheets?

EG: After the economic crisis of the second half of 2008 the Feds and the FDIC evolved a policy different from the RTC days, where the Feds aggressively went in to take over undercapitalized banks. Today the appare

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