The "New" Great Divide

Ever seen a Great Divide? (http://en.wikipedia.org/wiki/Continental_Divide)

In real estate, there is a lot of talk about a Great Divide that exists between buyers and sellers these days. Also referred to as the bid/ask spread, we are in a situation where buyers have one set of demands and sellers have a different set of expectations, often the two do not meet. But, given time and a hard push off the plank by lenders, this disconnect will resolve itself.

There is a very different Great Divide occurring in commercial real estate that is generally unrecognized - that between investors and lenders. Lenders want exceptionally safe deals, low loan to values, high rate spreads, built-in floors, etc. Investors want the deals with lots of distress, big potential for upside and growth, some current income, etc. Find a deal that looks like those two descriptions simultaneously and you have a pot of gold at the end of the rainbow.

This is the big secret that is underlying the current freeze occurring in commercial real estate markets - it isn't just that buyers and sellers can't agree, it is is that lenders and investors are at odds. Great Divides are difficult places, they are hard to cross and unforgiving. The good news is that the commercial real estate market will unthaw much sooner than a Great Divide will level out, the bad news is that neither is likely to occur soon.