Notes From the Credit Market's Front Lines

As the latest week of market chop ended in sudden calm and the new week quickly reverted to chop, I spoke with a few people on the front lines of the credit conflict.

A mix of deep concern and cautious optimism cuts across the professional spectrum, affecting those whose hands are directly on the money as well as those in the middle. Several themes dominated, as they are dominating deal considerations.

Of course, much of the talk centered around repricing of risk or the changing cost of debt, capital on the sidelines and the conundrum of strong operating fundamentals against weak liquidity. Refreshingly -- and contrary to some recent reports -- there was very little head-in-the-sand thinking. Instead, I found people trying to balance a sense of panic with feelings of forbearance about a market gone haywire amid late-summer somnolence.

Making Sense of the Noise

"The whole issue is," said one commercial mortgage broker -- reflecting the concerns that no doubt are on the top of the mind for anyone whose livelihood depends on a steady deal flow during a period of virtual deal-lessness -- "how long this repricing period is going to last and, when it's finished, what is the new capital market going to look like?"

That's a question no one can really answer. Maury Tognarelli, chief executive officer of Heitman, which manages some $20 billion in real estate-related investments for mostly institutional clients, projects a measured calm in his approach to market tumult. "Clearly, we are watching the volatility in the capital markets and trying to assess how that is going to impact pricing in regards to investments we're making and investments we're trying to sell," he says.

One challenge is trying to steer clear of misinformation. "There is quite a bit of noise in the market, about spreads, about the cost of capital, about a number of failures that have been highly publicized. You look at that information and try and relate it to the fundamentals in the market," Tognarelli says.

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