The financial bloodbath that could have occurred in the commercial real estate market will be averted as long as federal regulators continue their look-the-other-way policy when it comes to lenders and their troubled borrowers, the head of a San Diego workout firm told a group of real estate journalists in San Antonio.

"The regulatory climate is preventing" the commercial market from falling off the same cliff from which the residential sector tumbled, Douglas Wilson, chairman of the Douglas Wilson Cos., said at the National Association of Real Estate Editors' annual conference.

But even without government intervention, said Wilson, whose firm often works as a court-appointed overseer of troubled assets, "everyone is struggling mightily to avoid foreclosure." And in so doing, he added, "we're see some pretty creative attempts" by loan servicers to keep properties from folding.

Wilson characterized their attitude as "let's not add any more fuel to the bonfire."

The REO/loan specialist, whose firm has worked for nearly 100 institutions on assets valued at more than $12 billion, also said the peak in commercial loan defaults is behind us. "That's not to say some significant problems don't lie ahead," he said, "but the amount of incoming properties has been reduced."

John Leary, chair of the Counselors of Real Estate and the president of Leary Consulting and Valuation in New Haven, Conn., told the assembled real estate writers that while the downward cycle in commercial real estate has been "mysterious," it has "not been unpredictable or unexpected."

Both speakers predicted that the recovery would be "multi-faceted," meaning it would begin, Leary said, at different times and in different places. And both stressed the importance of local markets, with Leary pointing out that while Washington, D.C., has strong fundamentals, it's a different story entirely just 20 to 30 miles out into the Washington suburbs.

Wilson, meanwhile, said that many sellers and buyers still have to come to grips with the new realities of the marketplace. He said he is acting a receiver for three malls, one of which has an outstanding mortgage of $110 million but "will trade" for $35 million at best. And buyers can no longer expect a 20% return on their investments, either, he added, pointing out that a 12% ROI is better than the zero percent they will earn if they continue to keep their investment dollars in their pockets.

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