Investment sales activity in 2007 finished at near record levels despite the national disruption within the debt capital markets. Many firms reported Fourth quarter numbers were down significantly from historical norms and activity levels are expected to be lower in the foreseeable future. Driven by changing debt availability and terms, significant pricing gaps among buyers and sellers are creating delays in launching of any major assets sales. This slowdown is expected to continue well into 2008 until liquidity returns to the marketplace.

The new year triggers new hopes and fears as real estate capital markets continue readjusting from nearly a decade of uninterrupted volume and pricing momentum. While many investors fear new funding restrictions, others welcome more disciplined and “customary” underwriting practices deemed to be “normal.”

Prepayment penalties can be substantial to borrowers, as well as attractive profit protection for lenders. Borrowers need flexibility, while lenders seek yield preservation.

The highest risks and rewards are clearly centered in the land acquisition and development arena. Land is the first development ingredient impacted by economic cycles as is painfully obvious in today’s residential markets. And even in good times, land is burdened with costs and seldom offers income.

Within the past five years, student housing has been promoted to a favorite property type and subcategory within the multi-family real estate finance sector. Historically, this entrepreneurially-driven industry was controlled by local/regional players. Now, more national firms are acquiring and aggregating student housing portfolios – especially in major university campuses. This sector promises dynamic growth as many institutions are severely in need of affordable and available student housing within near campuses. Furthermore, this sector is not as closely tied to the current residential market malaise as higher education is in strong demand and limited facilities are available.

Despite real estate debt market turmoil, overall equity yields for income properties remain near 40-year-lows. While bargain-hunting abounds in the residential arena -- particularly new condominium developments in overbuilt metro areas, investors still crave for high-quality, income properties. While the mode is cautious and selective, funds are readily available as public funds, private capital, foreign buyers and tax-exchange players aggressively hunt for Class-A properties -- assets with strong cash flow and upside potential.

Medical Office Buildings (MOBs) are one of the more exciting development and acquisition opportunities within the income-property investment arena. However, given today's uncertain financing market conditions, these properties require more underwriting knowledge than other conventional property types (e.g. apartment, retail and office properties).

Given this late summer's tumultuous realty capital markets and property oversupply concerns (e.g., retail and residential), borrowers are often puzzled about how new construction loans are underwritten.

Since December, the yield curve remains inverted, suggesting the looming threat of a recession and credit market turmoil. However, the previous time the yield curve inverted within the past decade, a recession did not occur. This phenomenon has proven to be a result of domestic and international investors flocking to longer-term, US debt instruments. The winners, of course, are long-term borrowers.

During the subprime credit crunch of the past two months, most of the focus remains on loan performance and treasury rates. While these indices are accurate gauges of market conditions, a long-ignored index resurfaced on the watchlist -- LIBOR ( London interbank offering rate).

Regardless of technological change, the basics remain the same - all communications are filtered by the five senses of seeing, hearing, touching, smelling and tasting. No small wonder that American business spends billions every day targeting the senses. And, the rules for reaching those senses are changing dramatically.

In today's overheated realty capital markets, most of the underwriting focus is on property location, physical issues and cash flow performance. And in specific instances - particularly long-term, net leased properties - these variables are sufficient enough to accurately underwrite an income-property loan.

During January, key treasury rates steadily climbed by about a quarter percent, rebounding slightly with yesterday’s Fed announcement to hold rates steady. Overall rates are similar to spring, 2006, although mortgage spreads continued narrowing. As is the case since August with short-term rates, Bank Prime and LIBOR stayed unchanged.

Borrowers feast on extremely competitive loans as lenders fund record amounts of debt in a highly competitive realty capital market. Rates, amortization schedules, prepayment provisions, good faith deposits and other traditional underwriting terms are liberally negotiated.

Only a few years ago, mortgage spreads below 100 basis points over comparable-term treasuries were reserved for the highest quality, institutional-property loans. Such pricing required long-term, credit tenant occupancy and substantially conservative leverage of 65% or less.

Permanent loans, mezzanine, secondary and other debt financing options are abundantly available for most existing properties with reasonable cash flow streams. Furthermore, terms and conditions have never been more favorable. Lenders are accepting low spreads at reduced (or no) fees, and offering other incentives including lower legal and third-party processing costs.

Historically income-producing real estate debt has been indexed to Baa Bonds. However during most of this decade, the price differentiation is dramatically moved in favor of real estate, instead of corporate bonds. Corporate Baa Bonds are currently trading in the range of 6.5%; commercial mortgage bonds are trading in the 5.5% to 6% range.

Over a year ago, income-property mortgage rates climbed, both short and long term. Prime and LIBOR-based debt rose by more than one-and-one-half percent. Long-term rates saw less dramatic spikes to the tune of about three-quarters of a percent.