CALIFORNIA REAL ESTATE JOURNAL

Dec. 8, 2008

S P E C I A L S P O N S O R E D S E C T I O N

REAL ESTATE JOURNALC A L I F O R N I A

WWW.CAREALESTATEJOURNAL.COM CALIFORNIA REAL ESTATE JOURNAL DEC. 8, 2008 PAGE 17

ROUNDTABLE � MULTIFAMILYROUNDTABLE � MULTIFAMILY

Turn the Political, Economic Page

CREJ: How will the change in administra-tions at the White House affect commercialreal estate in general, and specifically themultifamily industry?

STEPHEN D. CAULEY: Most economiststhink that an Obama administration wouldnot be good for investments. Obama him-self said he would raise capital gains taxes.That would be at least a moderate negativefor real estate values.

The die has been cast in a lot of ways.The mortgage meltdown already happened.People’s expectations will drive what hap-pens next in the economy. McCain hadsome real problems, but he was right whenhe said that American economic funda-mentals are still the best in the world.

Multifamily housing is probably well-posi-tioned going forward. That doesn’t mean

this won’t be a depressing time. The bot-tom line is, any president was going to havea hard time. The decisions Obama canmake will be sorely constrained for the nextcouple of years.

TIMOTHY L. WHITE: If you like the idea ofa strong government role in housing policy,the Obama administration is likely to deliverone. Nobody knows exactly what that willmean for Fannie Mae or Freddie Mac,though.

CREJ: How are multifamily fundamentalsrelative to other asset classes in California?

SARAH BRIDGE: California multifamilyrental and occupancy trends are good. TheNorthern California markets are surpassingthe Southern California markets in rentgrowth. But that might be more of a re-sponse to the fact that Southern California

has been outstripping Northern California,as it recovered from the last debacle, thedot-com bust.

Some markets are weakening. In the In-land Empire, the third quarter of ’08 sawrents go down for the first time in five years.This is the only California market wherewe’ve seen actual negative rent growth.

In terms of occupancy, we track 24MSAs in California, and about half are ex-periencing negative occupancy growth. Thatforetells that the rents will go down.

The biggest growth markets, such asSan Jose and San Francisco right now, areboth reporting negative occupancy growth.

CREJ: How would you compare coastal toinland California?

BRIDGE: The Central Valley is always thefirst to show decline in bad times, and the

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T he financial markets are indisarray. The economy hasstalled and real estateinvestment and development

have plummeted. It is the perfecttime for opportunistic real estate

players to place their bets on the eventualeconomic upswing and the best opportunities justmight be found in California’s multifamily market.

With the single-family housing market yet to hitbottom and unemployment rising, apartments stillare performing with relatively stable rent growth

and occupancy rates thanks to the state’s chronic undersupply of housing.Capital is more readily available for multifamily investment and development than other property types despite

California being at the center of the subprime mortgage crisis and rising capitalization rates. And, with little com-petition for land, it is possible to consider starting to develop multifamily projects.

That doesn’t mean uncovering opportunities will be easy. You just have to know where to look.The California Real Estate Journal gathered seven multifamily experts to help identify the risks and opportunitiesin the multifamily marketplace.

Moderated by Editor Michael Gottlieb, the Roundtable included:SARAH L. BRIDGE, president, REALFACTSSTEPHEN D. CAULEY, director of research, The Richard S. Ziman Center for Real Estate at the University of California, Los AngelesJOHN CONDAS, partner, Allen Matkins Leck Gamble Mallory & Natsis LLPALEX J. KATZ, managing director, Meridian Capital GroupLAURIE LUSTIG-BOWER, executive vice president, CB Richard EllisALEX MOGHAREBI, vice president of investments, Marcus & Millichap Real Estate Investment ServicesTIMOTHY L. WHITE, president, PNC ARCS

PAGE 18 DEC. 8, 2008 CALIFORNIA REAL ESTATE JOURNAL WWW.CAREALESTATEJOURNAL.COM


last to experience gain when there is rentgrowth. Both Sacramento/the Central Valleyand the Inland Empire are the laggers in therent ranking and also in terms of growth.

Over the past four years, coastal Californiahas had an average of about 24 percent rent

growth, 5 percent per year, although there aresigns of a slow down now. As of September,occupancy is uneven everywhere.

One thing about California is that the bot-tom doesn’t just fall out from under the mar-ket. RealFacts has been around almost 20years and we’ve actually been through threemajor downturns now. The first one, when wegot into this business, was the savings andloan debacle. Property values plummeted formultifamily, but the reason was that rents did-n’t grow as aggressively as projected.

The next downturn was the post-911 scare.In Northern California that coincided with thedot-com bust, so that area was harder hitthen the rest of the state. Southern Californiacontinued to experience rent growth. It wasn’tunprecedented, but it was still growing. It af-fected Northern California the most, between15 and 20 percent of its rent value. On theother hand, it was a correction of the BayArea’s growth, which had been unprece-dented in the history of the rental markets.

With the current crisis, the impact seemsto be on rents, that they are flatlining. I don’tforesee a dramatic change up or down.

ALEX MOGHAREBI: Commodity markets, like

the Inland Empire where I work, have been im-pacted significantly by the shadow market —vacant housing competing directly with multi-family for the rental dollar. One of every 32homes in the Inland Empire is in foreclosure.

Investors are purchasing these homes andrenting them out. Tenants find they can rent ahome with a garage, two bedrooms and abackyard for the same price as a Class Aapartment. We’ve already seen the value ofmultifamily drop as a result, depending onarea and class asset, as much as 30 to 40percent, due to the shadow-market effect onthe property’s income and a lack of financing.

LAURIE LUSTIG-BOWER: Alex, are Class Abuildings having to reduce their asking rents?

MOGHAREBI: Significantly. The biggest im-pact has been on the Class A building, be-cause at that level of rent, they are competingwith the housing market. There’s less impacton B and C product so far, but I expect thatthe trickling-down effect will be even more sothis time.

LUSTIG-BOWER: I would think that Class Bproperties are going to be affected, becausethe A’s are reducing their prices.

MOGHAREBI: Yes, but not by as much. “A”trickles down to “B,” but I don’t think it’s goingto have much impact on the C properties.

KATZ: Even in the infill locations, although theforeclosure rate hasn’t skyrocketed to the ex-tent of the Inland Empire, we are seeing a lotof condo developers being squeezed andforced to rent their units out at rates thatmake it extremely difficult to get financing. Ibelieve we are going to start to seeing down-ward pressure on the upper echelon of multi-family product because of this competitionfrom what would have been for-sale product.

MOGHAREBI: They are always impacted. Thequestion is; how much and what market?

BRIDGE: We did an analysis on the Inland Em-pire. Rents were down between the secondquarter and the third quarter of 2008 for allunit-types. The hardest hit were the three-bed-room, two-bathrooms units. One possible ex-planation is the shadow market. One-bed-room one-bathroom units took a hit, too;that’s the soft economy. People double up in-stead of getting their own units.

CREJ: How about the fact that Class A multi-family is new in the Inland Empire becausepeople mostly moved there for affordablesingle-family homes?

MOGHAREBI: The parts of the region closestto Los Angeles and Orange counties are thestronger markets, but most of the Class Abuildings were developed in those areas. Af-fordability was a big factor and also jobs. Welost more than 40,000 jobs in the Inland Em-pire. Unemployment is getting close to 10percent.

CAULEY: That’s an incredibly important point.Look at the population growth forecast forSouthern California. It’s crazy as hell. Thismay be a perfect storm, in the sense that wehave high housing costs, high labor costs,

high taxes — why would firms want to behere? The Westside, for instance, is relativelyimmune to the problems we are facing. Theywon’t see anything like this level of unem-ployment.

CREJ: Now that we’ve learned that we’ve beenin a recession since Dec. 2007, and it cer-tainly felt like it, what impacts will we see onmultifamily fundamentals? Are there uniquequalities that will make this cycle different?

WHITE: The biggest impact we’re projecting isfrom the single-family foreclosure market, andthe shadow inventories that it creates. In thenation as a whole, we’ve got great fundamen-tals — 95 percent occupancy, 2.3 percentrent growth projected for the balance of theyear, across the country. But some areas willhave significant problems, and where we haveproblems, I suspect they’re going to stay withus for a long time.

Sarah said that the Bay Area took a longtime to recover from the dot-com bubbleburst. That is our observation as well, partic-ularly the San Jose area. The outlying areas,which are not supply-constrained, will see thelongest-term implications. It will stay with usfor several years, is my guess.

CAULEY: I’m not disagreeing with you, butthere is an important difference between theInland Empire and the Silicon Valley. They aredifferent socio-economically. The bottomdropped out on the dot-com sector. Unless wehave a rip-roaring recession, we won’t seethat kind of loss in Southern California. I don’tthink we are going to have growth, but what Iwould imagine is that we’re not going to havethe population/employment effect that wesaw in Northern California.

Golden State or Goose Egg?

CREJ: Are California multifamily investors andowners better insulated from softening apart-ment fundamentals than other markets in theU.S.?

BRIDGE: Absolutely. California is the goosethat lays the golden egg, over and over. Wejust have to keep from strangling it. Stompingthat goose. Kicking our goose. Throttling it, toextract every last dime. What happens in Cal-ifornia is that we over-project and we over-sup-ply because everybody wants a piece, andeverybody believes in the market.

This market always seems to recover. Wehave a pattern of five years of good, strong,even unprecedented growth, and then fiveyears of a lull or a flat line. It’s never a bigdrop, except for the dot-com/Bay Area phe-nomenon.

If you look at a market like Phoenix, for in-stance, what you see is maybe three years ofaverage growth — it would be a big triumph inPhoenix to have a 7 percent annual rent in-crease — and then you’ll see three to fiveyears of anemic growth. There’s always somereason why there is softness in that market.They’re vulnerable to every market condition— overbuilding, the economy, whatever —and you’ll see an incredible rent loss. We justdon’t have that here.

I’m not convinced there is a shadow mar-ket, at least not in the strong markets of Cal-



CONTINUED FROM PAGE 18

ROUNDTABLE � MULTIFAMILY

‘There is an important difference between theInland Empire and the Silicon Valley. They aredifferent socio-economically. The bottomdropped out on the dot-com sector. Unless we

have a rip-roaring recession, we won’t see that kind ofloss in Southern California. I don’t think we are going tohave growth, but what I would imagine is that we’re notgoing to have the population/employment effect that wesaw in Northern California.’

– STEPHEN D. CAULEY, The Richard S. Ziman Center for Real Estate


ifornia. There isn’t a drop in demand. Thesame markets that are weak are weak nomatter the circumstances.

WHITE: The shadow market is isolated. Itwon’t affect Southern California as a whole.

Two characteristics are very positive forapartment owners going forward. One isthere’s very little new apartment construc-tion going on now, especially in Southern Cal-ifornia. Two is the state’s demographics. Thetrends are very positive for new householdformation among young people and legal im-migrants. These factors will contribute tostrong demand in supply-constrained mar-kets and there are an awful lot of jobs. Thisis an incredible economic engine that wehave in Southern California. It’s not broken.It has suffered, but it’s not broken.

MOGHAREBI: The cost to reproduce existingproperties continues to rise in infill locationsbecause of the cost of energy, materials andlabor. That puts a hold on creating more in-ventory in the marketplace, which creates abetter base with which to move forward.

CREJ: Are builders no longer starting newprojects, but rather seeking to finish the proj-ects they’ve already started?

JOHN CONDAS: Some are close to gettingfinished, and they’re trying to figure out howto preserve their entitlements and whetherthey want to switch from for-sale product torental or vice versa. It is a pretty importantdecision.

However, we are starting to see some ac-

tivity at the very front end. Some of ourclients are looking to buy land, and we areworking on a couple of entitlement deals rightnow. These projects aren’t going to hit themarket for two or three years, when develop-ers perceive the market will be picking up.California is so supply-constrained, especiallyin the multifamily market. Further, many ju-risdictions that are less affluent don’t wantapartments, they would much prefer havingfor-sale units, even though new rental proj-ects would improve the housing stock of thejurisdiction.

Investor Outlook

CREJ: A two- to three-year apartment entitle-ment is pretty optimistic, but that supportsthe point that California is relatively insulatedfrom the worst of the economy’s swings. Doinvestors see that?

LUSTIG-BOWER: Reports are saying today’sproblems in the financial markets are just thetip of the iceberg, so investors are on thesidelines. They say, “Why would I buy anapartment building today if I can buy itcheaper next year, or even from a bank as anREO?”

I hear that a lot of corporate debt is goingto explode and will not be able to be paid off.We’ve got very high consumer credit carddebt. These are going to be the next bubblesto burst, and it will have a direct effect on thewhole population, including our tenants.

Consumer spending runs the country.Everybody has pulled back, even if they don’thave to. The stores aren’t getting their sales,and more retailers are probably going toclose after the first of the year. That’s peopleout of work, building tenants clearing out, of-fice space affected causing more people tobe laid off. This is a black cloud over thewhole country, and it’s contagious to the restof the world. Toy factories in China are clos-ing down because they are not getting theU.S. orders they expected. This is a seriousworld problem, not like in the ’90s when itwas mostly focused on the United States.

If you own an apartment building, I believeyou have a better chance of surviving thisdownturn than if you own other types of com-mercial property. But we are all in for astorm.

CAULEY: The rest of the world is in muchworse shape than we are. Interest rates arevery low everywhere, not only in the UnitedStates; and there’s been an increase in avail-ability of credit that has affected everyone.There is definitely a chance that we’re goingto have a very serious recession. The thingthat would drive it is fear. If people are afraidof what’s going to happen with their job,come Christmastime they’re not going to goshopping. It’s not that their incomes arelower. They are afraid their incomes will be-come lower. They spend less, so in effecttheir incomes are lower.

It’s going to affect multifamily housing justlike everything else. I’ll be very honest withyou, I’m in cash. I’ve been in cash for a cou-ple years. My wife has been very unhappywith me until recently.

LUSTIG-BOWER: I bet that most of the people reading this and the people on this

Roundtable have all had their net worth neg-atively affected.

MOGHAREBI: I don’t believe the income has-n’t come down. Employers are cutting back.They’re not giving the bonuses. They’re cut-ting back salaries.

Capitalization Rate Trends

CREJ: Typically, when the housing marketslows, multifamily is the place for strengthand opportunity for investors. Yet multifamilyled the trend of cap rate compression at thestart of the last cycle. What are the real ex-pectations for property values?

WHITE: Risk premium has returned, so thatis being built into the cap rate structurethese days. Also, lending is more conserva-tive than it was a couple years ago. The 1.15loan that you might have been able to get isgoing to be in a 1.25 debt cover. That proba-bly drives about a quarter of a point of caprate increase, because the cost of equity ismore expensive than the cost of debt. So it’snecessary to raise more equity and it mustbe priced at an attractive return that allowsfor the risk premium to be earned.

We will continue to see an upward trend inthe cap rates. Cap rates for multifamily willcontinue to be significantly lower than forother property types because there’s a pre-mium on the perceived safety of the multi-family product. But the days of the 5 percentcap rate are over, unless we are talking aboutthe most prime location and the best-runapartment complex. We’re seeing cap ratesmigrate in the 6 to 7 percent range in goodmarkets. In the outlying areas, we see higherrates than that.

MOGHAREBI: The other thing is the debt-coverage ratio of 1.15 that’s moving to 1.25.The lender used to look at projections, andon that basis use 1.15. Today they are look-ing at historical numbers. This shift alone inpolicy is a game changer.

KATZ: It’s more than that. It’s not just thatthe forward projections are no longer consid-ered by lenders. That concept already hasbeen out of play for quite a while. All under-writing criteria continues to become morestringent daily. Fannie and Freddie, the mostactive lenders in this realm, are taking a realfine-tooth comb over each number, even thein-place number, knowing that expenses,such as utility costs, trash, service contracts,all costs are all rising. In certain markets youhave negative rental growth, or occupancy is-sues. That’s where the cap rate decompres-sion is going to continue, forced by the eco-nomics of the deals. Ultimately in this market,prices are driven by the available loan terms.You could borrow 90 percent before and af-ford to pay a higher price. Now you can’t.

MOGHAREBI: That’s my point. Not only arecap rates increasing, but also the NOI isgoing down. Lenders are looking at the qual-ity of the buyer, their management expertise,revising historical operating information tothe lender’s standards, and then they use a1.25 debt-cover ratio. This process impactsvalue significantly.





‘California is the goose that lays the goldenegg, over and over. We just have to keep fromstrangling it. Stomping that goose. Kicking ourgoose. Throttling it, to extract every last dime.

What happens in California is that we over-project and weover-supply because everybody wants a piece, andeverybody believes in the market.’

– SARAH L. BRIDGE, REALFACTS


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Ultimately prices have to come down to fillthis gap because not many buyers in the mar-ketplace are looking to make a 50 or 60 per-cent downpayment.

WHITE: If you’re a GSE lender, you’ve been

making your major loans on trailing rents forstabilized properties. You might look at trail-ing rents different periods of time — 12, sixor three months’ worth — that you use tomake your lending decisions, but that’s theway the underwriting decisions are made.

GSEs lost a lot of business to people whodid not make loans on trailing rents. I don’tknow the conduit practice that well, but I sus-pect that forward-rent-trending projections al-lowed conduits to lend higher dollars than theGSEs. That’s been our history. Lending un-derwriting parameters are absolutely more re-strictive now than a few years ago, and that’sgoing to stay in place for the foreseeable fu-ture. It may even trend a little further towardconservatism.

KATZ: The GSEs did not entirely adopt thetraditional conduits’ approach, which is per-haps why they lost some multifamily busi-ness to Wall Street in recent year. Wall Streetwould lend aggressively on pro forma goingout two years, or even further. They would as-sume wholeheartedly that you’d hit expecta-tions, and they would lend significantly moreat closing, even fully funding in certain in-stances.

When it comes to rehab deals or acquisi-tion upgrades that rely predominantly on thefuture value and rents, the GSEs are lookinga lot more strictly at those numbers now,wondering whether you’re going to achievethem in the current environment.

MOGHAREBI: What is going to happen withall of the loans that are coming due in thenext two years, when the lenders going toapply the new criteria?

KATZ: It will be very interesting to see. Youhave the 10-year maturities coming due,which were underwritten completely differ-ently than the five-years. There are so manyproperties where it’s not clear whether youcan sell them for a price that works for bothparties. They’re underwater based on theiroutstanding debt. There’s going to be a siz-able wave of foreclosures, defaults or shortsales. How do you take out the overwhelmingamount of debt? Lenders are coming upshort, time and time again. It’s going to be acoming-to-reality situation for everybody.

MOGHAREBI: There’s been a disconnect be-tween the real and perceived value for solong. We have to learn the real value first, andthen hope that the perceived value is not sig-nificantly under it.

CAULEY: How much higher cap rates doesthat translate into?

MOGHAREBI: 7 to 7.5 percent depending onthe area. Perhaps it is better to say another100 to 150 basis points.

KATZ: It’s also probably going to be a func-tion of where the cost of borrowing is. Today,borrowing costs remain reasonable for multi-family.

It’s not even that it’s simply cheaper toborrow for multifamily product. Reasonablypriced and sized loans are not available alto-gether for many product types right now. Tobe able to borrow five-year money between5.75 and 6.25 today for apartments, that’sreally what you may want to focus on. There’sgot to be some reason to invest in theseproperties. I would expect to see cap ratescreeping up toward 7 percent in order for it tomake sense, provided the interest rates re-main the same.

MOGHAREBI: Exactly my point. We need tolook at the cost of the funds when placingvalue on properties. The cost of the funds, asAlex says, changes with the cap rate.

CAULEY: I’m expecting cap rates to hit 8 per-cent, because I expect the risk premiums andinterest rates in general are going to go up.

WHITE: In what markets for 8 caps?

CAULEY: Los Angeles apartments.

LUSTIG-BOWER: When, Steve?

CAULEY: In the next couple of years. Long-term rates will be going up at least 100 basispoints.

CREJ: What are the latest investment trans-action statistics for apartments?

BRIDGE: We track investment-grade multi-family. Right now, in terms of volume, we areat about 25 percent of what we were in2007. We’ve tracked transactions of about9,000 units compared to 40,000 last year.

By the end of this year we are expecting to beat about one-third of last year’s volume. Prop-erties that are changing hands are older,smaller and more expensive. The cap ratesthis year are the lowest ever: 4.9 percent.

Sellers can’t realistically settle for a lowerprice because of the way they bought theirproperty and what it would take to makethem whole. Rents are appreciating veryslowly and buyers are looking for a higher caprate. It’s as if there has to be some foreclo-sure activity in order to drive the next round oftransactions.

LUSTIG-BOWER: I suspect that the low caprates you describe are because the dealsthat got done so far for 2008 might havebeen negotiated in 2007 or at the begin-ning of 2008. If you took an apples-to-ap-ples comparison, you’d see the cap rateshave gone up significantly — 100 to 250basis points depending upon the asset andlocation. Those with low cap rates this yearmight have been trophy properties thatwere able to trade. People paid up for thosebecause they were special locations or as-sets. A lot of the bread-and-butter stuff thattraded all day long in the last couple ofyears is off the market now because of thepricing disconnect between the sellers andbuyers.

BRIDGE: Exactly. The deals are all in infill. Notransactions are happening in Fresno and thefringe markets. There’s a stalemate going onfor the work-a-day properties.

KATZ: You have a lot of people and cash sit-ting on the sidelines. They don’t want to bethe ones that bought now, when six to 12months from now there’s a wave of foreclo-sures and everyone else gets a steal.

We were seeing rates of 5 percent for five-year money during the first six or eightmonths of this year. As a result, there was aflood of interest from borrowers wanting tocash out and local a low fixed rate. Many ofthose people can no longer take all theirmoney off the table, but they still can obtainreasonable cash out. For prospective sellers,instead of being dissatisfied with offerstoday, they can refinance into a low fixed ratethat’s assumable, and sell when the marketcomes back. We cashed many investors outthis year for the purpose of buying deals thatwill come into play in the first and secondquarter of next year.

WHITE: That factor’s actually slowing downthe discretionary refinance business rightnow. We have borrowers who have the abilityto cash out, but they come back to us andsay they’re not sure what they want to do withthe money. They don’t have a good place toput it.

One comment on transaction volume.We’ve seen a decline in the transaction vol-ume, but not as much as we hear about inthe industry as a whole. We still see a rea-sonable volume of transactions under $30million. Most of the buyers have been privatebuyers with private equity — not much on theinstitutional side. Maybe it’s just a function ofour portfolio, but it is a little different fromwhat you’re seeing.





‘If you own an apartment building, I believe youhave a better chance of surviving this downturnthan if you own other types of commercialproperty. But we are all in for a storm.’

– LAURIE LUSTIG-BOWER, CB Richard Ellis


KATZ: The first six months of this year, peoplewere just hand-over-fist getting into cash sothey could buy. That has slowed down for tworeasons. One is that interest rates are not4.75, they are now 6 percent on average. Peo-ple who were doing elective refinances now

want to wait and see how Obama’s presi-dency will change things, or if changes inmonetary policy will take hold. The other rea-son is not knowing what to do with the money.

Ending the Standoff

CREJ: What is it going to take to break this im-passe between buyers and sellers?

WHITE: Part of the discretionary refinancemarket that’s up for grabs right now is thecash-out refinance. There are plenty of loansthat still need to be refinanced, and should berefinanced, at 6 percent. A lot of people be-lieve that interest rates are going to go up100 basis points — why not refinance nowrather than wait for that to happen? That’s avery likely scenario, and it will help. It will keepthe engine running, even if the transaction vol-ume slows.

KATZ: There are a lot of loans out there, es-pecially in the $1 million to $30 million realm,that are moving into an adjustable phase. Ihad somebody just call me on a large portfo-lio of apartment deals, and I was able to ob-tain a 5.75 fixed rate for five years. He said,“Look at where LIBOR is. Why don’t we just do

a floating-rate deal?” For newly originateddeals, borrowers are considering short-term,floating-rate debt now more than ever.

Even for existing business, it’s hard to con-vince people who had a fixed rate of 7.5 per-cent that it’s headed for 12, and they need toget off the sidelines and refinance now.They’re saying, “If it’s adjustable, why don’twe just wait? If rates go down further, I get thebenefit, and if they start to creep up, I’ll do itthen.” That’s what we are seeing.

CAULEY: What you can point out to them isthat we don’t know what’s going to happen tothe economy. That’s what’s going to deter-mine the future.

CREJ: Will loan maturities force people tocome to the table?

MOGHAREBI: It’s the difference between aseller that would like to sell versus one thathas to sell. As soon as we see sellers go from“like to” to “have to,” you’re going to see theadjustment, and the gap will close betweenthe buyers and sellers.

KATZ: Your clients will be the banks and in-stitutions. They underwrote it and put this alltogether.

MOGHAREBI: Last time we saw an increasein defaults, operations were dismal. We’renot seeing that this time around, althoughthat may change. In addition, the lenderswere quickly foreclosing on troubled assets.Nowadays loans are being worked out beforethe property goes to foreclosure. The trou-bled assets are not being exposed to theopen marketplace.

BRIDGE: Especially if you get to them all be-fore the two-year window. Right?

MOGHAREBI: This may change if the marketcontinues to deteriorate. I am seeing this inthe Inland Empire where the rental market issoft and some owners are having a difficulttime managing their properties.

CAULEY: There’s going to be a lot more work-outs.

BRIDGE: So what is going to turn this marketinto sellers that have to sell?

WHITE: Time.

MOGHAREBI: Time, erosion of equity or theinability to replace existing debt.

LUSTIG-BOWER: If we do have erosion of in-come due to the economy coupled with risingoperating costs people who paid 3.5 percentto 4.5 percent cap rates in the past couple ofyears may find that their NOI disappears.

If we have an erosion with rents, thosepeople are going to be under water veryquickly. Then here is the problem: They’ve gotto feed the building in order to not let it goback to the lender. If they try to sell it, they’regoing to lose. We’re not in that environmentof the 3.5 percent to 4.5 percent cap rates.They’ve got a lower NOI, and the cap rates,I’m seeing, are inching up to 7 percent.That’s frightening. Their entire equity, even ifthey put down 40 percent, could be wiped

out.

MOGHAREBI: In the Inland Empire, unfortu-nately, properties purchased in the past 2 1⁄2to 3 years, face very limited options.

WHITE: Those are likely to be the people thatput short-term money on their properties. It’sthe loans with less than five-year terms thatare more likely to have trouble. There maynot be a clean answer for them. They got intothe deal without a workable exit strategy, andnow they have to pay for that.

CREJ: Are we talking about the value-addplay, of putting some money into a property,raising rents, and getting out relativelyquickly?

KATZ: It’s partially that, but it’s also thecondo-conversion craze. A lot of these caprates that you saw, crazy stuff between say1.5 and 4, they’re coming to us now and ask-ing for our help. They filed the condo map,they’ve gone to marketing, and they can’t sellunits for anything reasonable. They don’twant to sell just some units because if theydo they could be in real trouble and risk notgetting financing, period. At least if they con-vert to apartments, assuming that thesepeople have the net worth to be able to paydown their debt, we can potentially get themsome financing.

We’re seeing a number of deals that areunder water, where even if you rent out all ofthe units at market rents or even above-mar-ket rents, you’re still at a sub-break-evendebt-coverage ratio. These things are just notconventionally financeable.

Switching from For-Sale to Rental

CREJ: What are some of the issues you dis-cuss with investors or developers who areconsidering switching their project from for-sale to rental? What are the entitlement chal-lenges?

CONDAS: It really depends on the nature ofthe conversion. I always recommend toclients that when they’re entitling a project,especially if they don’t know what they aregoing to do with it when they finish, to put acondo map on it. Even if they decide to go witha rental, the city or county won’t hit them upwith a lot more exactions or conditions of ap-proval, because the impacts are basically thesame.

However, many jurisdictions have higherconstruction standards and increased parkingrequirements for condo projects. Also, the en-titlement decision depends on what they aregoing to do in terms of the density. A condoproject generally has bigger units: three bed-rooms, two baths, for example. That may notbe the same product you would want for arental project.

If you try to make the unit smaller, youcould increase the density, and that can trig-ger more local government resistance to enti-tlement modifications, maybe even triggeringthe need for a new CEQA document. If thereis an opportunity to reopen those approvals,a lot of jurisdictions do not favor for-rent units.They want for-sale units because they per-ceive that to be more stable.





‘There are so many properties where it’s notclear whether you can sell them for a pricethat works for both parties. They’reunderwater based on their outstanding debt.

There’s going to be a sizable wave of foreclosures,defaults or short sales. How do you take out theoverwhelming amount of debt? Lenders are coming upshort, time and time again. It’s going to be a coming-to-reality situation for everybody.’

– ALEX J. KATZ, Meridian Capital Group

CREJ: Will we be seeing high-rise for-saleprojects convert to rentals?

CONDAS: As unappealing as conversion torental is for condo developers, the alterna-tive of keeping them condos may even beworse. There is so much product available

for sale and developers of for-sale productmay not have the expertise or the capitalcommitments to hold as rental product.

We represent some apartment REITs.They generally build apartment units andhold them. However, a lot of developers, whoentitle or build condominium units are notgeared to be holders of real estate, in otherwords an asset manager. They just want tobuild or get entitlement, and get out. Con-version to rental is a last resort.

KATZ: We also represent a lot of REITs.They are coming now, saying they want tobuild multifamily. Eighteen months ago,they would say they didn’t know if theywanted to go condo or multifamily, so theywanted to position themselves to leave itopen for either.

Now it’s become difficult to the pointwhere REIT-quality borrowers can’t get fi-nancing even for ground-up apartment con-struction. It’s come to a screeching halt.

LUSTIG-BOWER: Even on a 30-unit apart-ment building, already entitled?

KATZ: If you told me today you want to build

units in West L.A. and you were planning it to-tally as apartments, you could probably get a60 percent loan-to-cost if you have a $5 mil-lion to $10 million liquidity position that’sprovable, and a $25 to $35 million net worth.That’s likely your best-case scenario.

WHITE: The large apartment constructionproject is nearly impossible because youcan’t get bank syndication. Smaller dealscan be done, but on a very limited basis forclients with long-term relationships with theirbanks. It is very difficult now to establish anew relationship with a first- or second-tierbank, and be able to get a construction loan,even on terms that made sense a year ortwo ago.

KATZ: One word that we haven’t looked atyet is “recourse.” It was a curse word formany years, especially to REITs. They are notallowed to take on a certain level of contin-gent liability. I’m working with a REIT rightnow, and there’s a 300 basis point differ-ence in the financing I can get for them if it’sgoing to be recourse verses non-recourse,even a partial recourse, and they can’t do it,or they won’t. That’s the difference. Somedeals are not getting done because of that.

Mom-and-pop-type operators that want tobuild five to 30 units can find debt available,but it comes at a much higher cost. The lastconstruction loan I saw was 60 to 65 percentloan-to-cost. We are now looking at 400 basispoints over LIBOR, with a 6 or 7 percent floor,full recourse, and points in and out. It’s pro-hibitive relative to what borrowers have be-come accustomed to.

Underwriting Is Simple Today

CREJ: Is underwriting more difficult today?

KATZ: Underwriting is simpler — that’s forsure. Without future projections, there’s lessto talk about, right? You look at a piece ofpaper, at what’s in place at the property. Itmakes certain deals more difficult to getdone.

We are finding that Fannie and Freddie arelooking at commercial borrowers much moreclosely — almost in the same way they wouldlook at a residential borrower. They’re reallydigging into credit scores and tax returns. Un-derwriting sponsorship has become a lotmore stringent, and underwriting of propertieshas become simpler, but that’s not necessar-ily better for our cause.

WHITE: We tell people that the relationshipreally matters now. No lender can be allthings to all people, but we aim to take careof our good customers’ needs, so they will dorepeat business with us. That’s differentthan in the early 2000s when there may havebeen more focus on the transaction than therelationship.

The deal is easier to underwrite, that’strue. We don’t worry about how to workthrough out-of-the-box things — we’re justgoing to say “no” more often than in the past.There will be less structuring in the deals, buta lot more focus on what’s going on with re-spect to the sponsor’s REO: What does hisREO schedule look like? Is he going to be ableto carry this project if it gets into trouble? Weneed to worry about these things if were mak-

ing non-recourse loans.

KATZ: It’s to the extreme. Fannie and Freddieare going all the way down to actual bodies for100 percent of the ownership structure, andsaying they want to know everything abouteveryone involved — not just the actual oper-ators or the key principals to the transactions,but even passive investors. They turned ablind eye to it before, but if you’ve got skele-tons in your closet now, it could have a dras-tic impact and they certainly want to knowabout it.

Outlook for Freddie and Fannie

CREJ: What outlook do you project for Fannieand Freddie, in terms of their continuing rolein the multifamily market?

WHITE: Giant question — nobody knows forsure. To look at it short-term, what we knowtoday is that both Fannie and Freddie aremuch stronger than they were prior to Sept.7 when the Federal Housing Finance Agencywas established as a conservator for Fannieand Freddie, because each now has accessto $100 billion dollars from the federal gov-ernment. They can get business done nowthat they would not have been able to, wereit not for government support.

We also know that their regulator, theFederal Housing Finance Agency, has sup-ported the multifamily business. It is en-couraging to see both agencies engage inbusiness as usual, and supporting their liq-uidity mission. These things are very posi-tive. Both Fannie and Freddie have been say-ing it’s business as usual, and both agen-cies are walking the talk very well. Youwouldn’t notice a change if you looked attheir business volumes, except for some ofthe underwriting things that we’ve been talk-ing about. They’re great lenders and they’redoing a good job right now.

Where it’s all going is anybody’s guess.Congress is going to have to get involved.That will be one of the first orders of busi-ness under the Obama administration. Theconservatorship is supposed to end at theend of 2009. It’s not clear whether that’senough time to resolve what to do with theGSEs.

A lot of people think the conservatorshipwill have to be extended. If that happens, it’sa question of how long Fannie and Freddiewill continue to operate in their currentmode, and if that current mode will be en-dorsed or changed. That’s where it’s any-body’s guess.

KATZ: The multifamily component of theagency business is relatively small — I hadheard around 15 percent of their overallbusiness — yet generally profitable for theentities.

The question is about liquidity in the mar-ketplace overall. They are going to continueto need capital to put out there. I don’t knowwhat this will lead to, but at least one if notboth of the agencies was looking at puttingtogether construction-to-permanent loans formultifamily, and maybe branching out intosome other arenas.

I don’t know necessarily if those plans willbe on hold, but it was encouraging to see the





‘The deal is easier to underwrite, that’s true. Wedon’t worry about how to work through out-of-the-box things — we’re just going to say “no”more often than in the past. There will be less

structuring in the deals, but a lot more focus on what’sgoing on with respect to the sponsor’s REO: What doeshis REO schedule look like? Is he going to be able tocarry this project if it gets into trouble? We need to worryabout these things if were making non-recourse loans.’

– TIMOTHY L.WHITE, PNC ARCS



agencies considering creative structures likethat, or forward-rate locks on supplementalloans. It will remain to be seen if they can fillsome market niches, because other gapsare otherwise going to continue to widen.

Greening Multifamily

CREJ: How will California Senate Bill 375,

which emphasizes green constructionthrough infill development and higher den-sity, affect new development and currentvalues?

CONDAS: The state is in a real bind. As-sembly Bill 32, which requires the state tosubstantially reduce greenhouse gas emis-sions, has many state agencies attemptingto devise programs to decrease greenhousegases. These include land-use regulationbecause vehicle miles traveled are one ofthe main producers of greenhouse gases.

When SB375 was first proposed it wasrevolutionary, usurping some of the powersof local government and almost mandatingin-fill development at the expense of green-field development. It was watered down be-fore it became law. It sets a foundation forfuture regulation. It is not so much of acause for concern for local governments.

However, a huge tension is going to con-tinue between the state government man-

dates and local government pushbackagainst those mandates. We’ve seen it for along time in terms of housing elements,where jurisdictions have to address their re-gional housing obligations. Some jurisdic-tions have been told by the California De-partment of Housing Community Develop-ment, which has to certify housing elementsevery five years, that HCD is going to bewithholding money and certification unlessmore affordable housing, and more housingin general, is produced.

Affordable-housing groups have litigatedagainst cities, claiming that they haven’tmet their affordable housing obligations.This can generate good opportunities forapartment developers to process projectsin such jurisdictions. SB375, and future leg-islation, may have a similar effect on localgovernments, pressuring them to meet af-fordable, and now, infill-housing mandates.

For developers willing to go into thosemarkets, there are going to be opportuni-ties. The question is how SB375 will affectnon-urban communities. Governments inthe Inland Empire are more concernedabout SB375 because they have less, orno, infill locations.

CREJ: Don’t these laws add costs at a timewhen executing a development is challeng-ing at best?

CONDAS: Yes. The developers aresqueezed to begin with. From their perspec-tive, there are not many exceptional multi-family sites. Then, there’s so much opposi-tion to multifamily. SB375 possible createsanother obstacle, whether something is aninfill site.

A lot of multifamily developers feel LEEDcertification is not that applicable to multi-family development. Some developers per-ceive that the U.S. Green Building Council istrying to jam a square peg in a round hole.

There have been attempts to come upwith some different certification models forgreen building. The problem is that a lot oflocal jurisdictions are defaulting to LEED,especially in Northern California. That maybe OK for office buildings, but it’s a lot moredifficult for apartment developers. We rep-resented a large multifamily developer ontwo projects in San Jose, and they weremandated to be LEED-certified. They aregrappling with how to achieve LEED certifi-cation.

CREJ: The complexion of a value-add dealhas changed because you may need to gobeyond improving the aesthetic to createvalue, and that may trigger a green require-ment, and an even more substantial invest-ment into the property.

CONDAS: That’s true, even in jurisdictionsthat don’t have mandatory green buildingrequirements yet. The California BuildingCode was amended in July, and althoughthe revisions were modest, if you look at fu-ture revisions that will be phased in over thenext few years, these upcoming revisionslook almost like a LEED checklist form. Therequirements are going to tighten andtighten.

Then on top of that you have jurisdictions

trying to have developers solve the ills ofthe lack of affordable housing in Californiaby mandating affordable-housing produc-tion. It just adds more cost to an area of de-velopment that already is hurting. It will beinteresting to see how those will impact fu-ture development.

LUSTIG-BOWER: Are any cities offering in-centives to go green, where they allow an in-crease in density to help offset the cost? Ithink it would be a win/win. When they didbonus densities for affordable units, it did-n’t pencil, but I’m thinking with green devel-opment it might.

CONDAS: Many local governments mandateLEED, period. In jurisdictions with voluntaryprograms, the incentives they offered aresupposedly streamlined approval of plans.That is good, but it isn’t going to encouragethat much housing.

The point you raise about densitybonuses is important. In 2005, state lawchanged concerning affordable housing.Government Code Section 65915 is a verypowerful statute. If you’re willing to provideaffordable housing, you’re mandated to getincentives or concessions in parking orheight requirements without the need to gothrough a variance process.

It is a very complicated statute, eight to10 pages long, and it’s a challenge to edu-cate local governments and developersabout how it works. But it, coupled withSB375, offer strong incentives for afford-able-housing and transit-oriented develop-ment, higher densities and a streamlinedCEQA review.

Perhaps it’s a way that we can get moreunits built. Potentially, if the density is highenough, it will make the affordable units,even with green-building components, pencilout.

CREJ: Bringing density into a communitydoesn’t necessarily streamline your entitle-ment process.

CONDAS: That’s true, it sounds great in the-ory, but bringing high densities to an infillsite often generates political backlash fromthe NIMBYs. Where higher density hasworked — although it doesn’t seem thatdense if you are from San Francisco or LosAngeles — is Irvine. Irvine allowed higherdensities because there weren’t a lot of res-idents nearby. It was mostly office buildings.There were some lawsuits filed by nearbylight industrial users who were afraid thatthe new homeowners would want to havethe industrial uses shut down. Also, Hunt-ington Beach has approved several innova-tive mixed-use project with extremely highdensities.

Final Thoughts

CREJ: What do you foresee as the biggestrisk in the multifamily marketplace for2009? What are the biggest opportunities?

BRIDGE: The biggest risk is investing infringe markets, but it sounds like thelenders aren’t going to allow that to happenanyway. We’re really getting back to basics.





‘Alot of multifamily developers feel LEEDcertification is not that applicable tomultifamily development. Some developersperceive that the U.S. Green Building

Council is trying to jam a square peg in a round hole.There have been attempts to come up with some

different certification models for green building. Theproblem is that a lot of local jurisdictions are defaultingto LEED, especially in Northern California. That may beOK for office buildings, but it’s a lot more difficult forapartment developers.’

– JOHN CONDAS, Allen Matkins Leck Gamble Mallory & Natsis LLP

We have to be very careful about analyzingthe underwriting and the fundamentals.Long gone are the days where we can askour lender to become our partner in a jointventure for a projected increase to occur atsome point down the line.

The best opportunity in 2009 will be the

chance to innovate and create new modelsfor multifamily property. When everythingappears to be breaking down it’s my favoritetime in the market. It leaves it wide open forinnovation and imagination.

KATZ: There are a couple of risks. The firstis, as operating expenses increase acrossthe board with respect to utilities, servicecontracts and wages and NOIs for multifam-ily decrease overall, owners and developerscould feel a crunch when it comes to cover-ing their mortgage payments and expensesevery month, and hoping to have anythingleft at the end.

Another risk is the wave of defaults thatcould follow as the loans originated over thepast 10 years come due and can’t be refi-nanced at their unpaid balances or evenclose to it.

Those same risks, however, also aregoing to create great opportunities. Thereare a lot of well-capitalized individuals, frommom-and-pop operators to opportunisticfunds, sitting on the sidelines waiting toswoop in and pick this stuff up. We don’tknow what the Obama administration will do

fiscally, but it could create some opportuni-ties toward the middle or the latter part ofnext year.

LUSTIG-BOWER: The biggest risk for multi-family in 2009 is going to be the overalleconomy. Multifamily is going to go up anddown with the tide. Everybody’s exposed toit. Additionally a lot of the multifamily out-look depends on what happens with FannieMae and Freddie Mac because the multi-family industry so heavily depends on thesetwo lenders to provide financing now that asignificant number of other lenders are outof the business or have become too expen-sive. Multifamily lending is really only asmall percentage of Fannie Mae and Fred-die Mac’s business. If Fannie Mae and Fred-die Mac more crises coming down the line,they may not be able to keep the lendinggoing for multifamily. They may need to di-vert that money to the bleeding crisesrather than make new loans. If we lose theability to go to Fannie and Freddie for debt,chances are high that cap rates will in-crease significantly as the remaininglenders in the market are more expensivethan the agencies. The disconnect betweenthe buyers’ and sellers’ expectations will in-crease, most likely causing a stagnation insales volume, similar to what other com-mercial properties are experiencing today.

Retail centers are already finding it hardto get financing. We may join the otherasset classes, unable to get reasonableconventional debt. That is a big risk.

The opportunity on the horizon is thatthere’s going to be some smart buys, eitherthrough the lender or distressed sellers. Wemay not hit the bottom of the market in2009 necessarily, but if you’re buying on theway down, or on the way up, you shouldcome out ahead.

CAULEY: The biggest risk is obviously eco-nomic. That may be short-lived or long, butnear the bottom there are always deals. Ifyou recognize the bottom, you’re going to dovery well in the long-run. Apartment build-ings in Southern California are going to be alot more valuable 10 years from now thanthey are today.

WHITE: The biggest risk is the job market.The foreclosure situation is not going to sta-bilize in the near term if we have a seriousunraveling of jobs. The unemployment pic-ture is going to hit us in many differentways. Anybody who has invested in apart-ments is betting on the U.S. economy. It’s agood bet as long as things are reasonablystable with prospects for growth. It’s not agood bet if things really go south.

In terms of opportunities, those thathave kept their powder dry are going to bein a position to help themselves, and stabi-lize our business, by coming in at the righttime with the right purchase.

MOGHAREBI: It comes down to jobs, af-fordability, and lack of financing — thebiggest risk could be a combination ofthose. Investors looking at deals should askhow well they can preserve their invest-ment, rather than how good of a deal it is. Ifthey want to buy something, their view

should be long-term, based on how well thedeal has been underwritten, and how wellthey can preserve their real estate. Weknow the reproduction cost is going to behigher in 10 or 15 years. The short-termdeal is gone for the next four or five years,until the dust settles and we understandwhat direction jobs, affordability and financ-ing are headed.

The opportunities come from waiting forowners to have to sell. Once we see thatchange in psychology, there will be a lot ofdeals. As long as you buy below productioncost and in infill locations with the right fun-damentals, you will do extremely well. How-ever, buyers need to calibrate themselveswith the market. Buyers that are overly pes-simistic and not in tune with the market willmiss the boat. In addition, private investorswill be able to re-enter the market, whichthey haven’t had a chance to so in sometime because the institutions were buyinglarger properties. You couldn’t get at aClass A building with private capital. Todayinstitutions are gone and private capitalhas the opportunity to take advantage ofthe market, provided they have patientmoney.

CONDAS: From a regulatory standpoint, therisks and opportunities are almost mirrorimages of each other. If the new develop-ment is green, sustainable, a transit priorityproject, dense residential — at least 20units to the acre — or a mixed-use projectunder SB375, litigation and regulatory risksare minimized as governmental agenciestighten down the requirements. Such proj-ects also will improve the likelihood thatsuch a project will be approved.

There is much political will to decreasegreenhouse gases. If the development com-munity can conform to these expectations,they will be miles ahead. The California Gov-ernment Code has some tremendous provi-sions to help get affordable-unit projectsbuilt. Developers should look for jurisdic-tions that are having problems meeting theirregional housing needs. They’re going to bemuch more open to approving developmentwith affordable units.

CREJ: It’s an interesting time for multifam-ily. There’s an essential dichotomy in themarketplace. Quality operations, quality lo-cations, quality markets, essentially, solidreal estate fundamentals, will drive and sus-tain opportunity going forward in the multi-family marketplace, particularly in Califor-nia. But on the flip side of that there are un-precedented challenges in terms of the re-structuring of the financial markets in aneconomy that perhaps will have a shallowrecession or perhaps is in for somethinglong and painful. And we’ve seen the begin-ning of the unwinding of the financial engi-neering that really dominated the market-place, compounded by the fact that we areseeing essential changes in the makeup ofour communities in terms of greater densityand going green.

Definitive answers may be hard to findbut at the very least it creates an interest-ing marketplace going into 2009. So thankyou very much in helping point us in theright direction to spot these challenges andopportunities.




‘The opportunities come from waiting for ownersto have to sell. Once we see that change inpsychology, there will be a lot of deals. As longas you buy below production cost and in infill

locations with the right fundamentals, you will doextremely well. However, buyers need to calibratethemselves with the market. Buyers that are overlypessimistic and not in tune with the market will miss the boat.’

– ALEX MOGHAREBI, Marcus & Millichap Real Estate Investment Services




SARAH L. BRIDGESarah L. Bridge has been active in multifamily in-vestment real estate for 25 years. She has beena commercial real estate broker, in-house brokerfor a merchant developer and presided over dis-position and recapitalization for a large portfolio.

In 1989, Bridge co-founded REALFACTS, a re-search organization and database publisher. The

online service covers more 3.1 million units of investment gradeapartments in 60 MSAs.

Realfacts will celebrate 20 years in business in 2009.

STEPHEN D. CAULEYStephen D. Cauley is the director of research for the RICHARDS. ZIMAN CENTER AT UCLA. He conducts research on the ap-plication of recent advances in economics, finance and statisticsto the valuation of publicly and privately heldreal estate, and has developed innovativestatistical and visualization techniques toanalyze spatial variation in real estate mar-kets. Cauley was responsible for the devel-opment of the CRSP/Ziman REIT databases.In addition to research, he teaches real es-tate investment and development at the An-derson School.

Cauley has held academic and researchpositions at the RAND Corporation and the Department of Eco-nomics at UCLA.

JOHN CONDASJohn Condas, a partner at ALLEN MATKINS LECK GAMBLEMALLORY & NATSIS, LLP, has broad experience obtaining anddefending all types of land-use and environmental permits. He

has particular experience working with multiple-species habitat plans and advises clients on thedeveloping climate change and green building re-quirements they face.

Condas has led legal due diligence and entitle-ment teams for real estate projects in more than160 jurisdictions. He has represented national,publicly traded and private homebuilding clients ac-quiring more than 18,000 residential lots.

Condas has taught real estate law at the University of South-ern California law school and in its MBA and Master of Real Es-tate Development programs. He serves on the NAIOP-Inland Em-pire Board of Directors as well as the USC Lusk Center ExecutiveCommittee. He has been recognized by his peers with a Martin-dale-Hubbell A-V Rating and in Southern California Super Lawyersfor Land Use/ Zoning in 2007 and 2008.

ALEX J. KATZAlex J. Katz manages the day-to-day opera-tions of the West Coast division of MERID-IAN CAPITAL GROUP, including a staff of12 and based in Century City. In addition tooverseeing and implementing the firm’s on-going business development initiatives,Katz personally works with many existing

and prospective clients on the structuring and placement oftheir debt needs. This regional office has been open since themiddle of 2006 and has enjoyed tremendous growth and mar-ket traction in California and neighboring states.

Katz previously worked in the real estate department ofKramer Levin Naftalis & Frankel, a New York-based law firm. Hehad also managed various land-development projects at theKushner Companies, a real estate development company inFlorham Park, New Jersey.

LAURIE LUSTIG-BOWERLaurie Lustig-Bower began her career in commer-cial real estate 20 years ago with CB RICHARDELLIS and now holds the title of executive vicepresident with the firm. She is the founder andleader of Team Lustig-Bower, a group of seven pro-fessionals specializing in the sales of apartmentbuildings and land for development of apartmentbuildings and condominium communities in LosAngeles. In the past three years alone, Lustig-Bower has han-dled nearly $2.5 billion in real estate transactions and has beenrated one of the top brokers in the United States for more thana decade.

ALEX MOGHAREBIAlex Mogharebi joined MARCUS & MILLICHAP in 1989. Overthe past 19 years, Mogharebi has become one of the top bro-kers in California and the country, specializing in the multifam-

ily investment market. He exclusively rep-resents some of the Inland Empire’slargest property owners in their commer-cial real estate needs. During his career,Mogharebi has sold over 40,000 units to-taling over $3 billion in sales. He hasbeen the top investment professionalcompanywide for Marcus & Millichap arecord 13 times and is one of only three

executive vice president of investments in the firm.

TIMOTHY L.WHITETimothy L. White is president of PNC ARCS, a PNC real estatefinance company and a leading supplier of commercial mort-gage financing, with an acknowledged expertisein multifamily financing. ARCS is one of the lead-ing financiers of apartment projects in the U.S.and as of July 2007 became a wholly owned sub-sidiary of PNC Bank.

White joined the original ARCS Mortgage asgeneral counsel in 1993. When ARCS Commer-cial Mortgage was formed in 1995, he becamechief operating officer and general counsel. Heplayed a key role in completing the sale of the company to PNCand has spearheaded the transition team since the emer-gence of the new ARCS.

Prior to ARCS, White served in counsel roles withUnited California Bank, Weyerhauser Mortgage Companyand Pillsbury, Madison, & Sutro, with a focus on real estate and finance.

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