Q: What will be the main elements of Jones Lang LaSalle’s global strategy for the next several years? In particular, which of your service lines appear to be especially well positioned for growth?

A: If you can have a “good” recession, we’ve had one. We did a very astute acquisition of the Staubach organization before the recession, and we were able to integrate the two businesses. We continue to be able to pick up on the momentum that we had during 2006, 2007 and 2008. So we start the 2010-2015 period with a lot of confidence and a lot of momentum.
Obviously, the agenda is growth. We see a lot of opportunity for LaSalle (Investment Management) to grow its investment management business worldwide. … We see growth opportunities for our corporate services business. For us, it’s a very appetizing strategic menu for the next couple of years.

Q: Generally speaking, what do you expect to account for the majority of Jones Lang LaSalle’s growth globally over the next few years?
A: Our principal driver is organic growth. We have set the entire business (plan) by that agenda. If you have a business that’s focused on organic profit growth, you’ve got the right sort of mindset across the organization. Selectively … as our confidence in the business and economic recovery is strengthened, we will be looking at acquisition growth.
Clearly, the economies that are internationally in better shape are the BRIC (Brazil, Russia, India and China) economies. We’re in a very fortunate position of having been in these countries for 15 and 20 years, such as Russia and China. That gives us a very good position in these economies.

Q: By all accounts, the global economic cycle is in a time of transition, if not turmoil. Which concerns should be foremost for real estate executives around the world?

A: The good news is, the depths of the recession are behind us and economies are growing. Although things are moving forward, there will be periods where individual countries or individual businesses will go backward for a while.
You can’t drive a business forward by looking in the rearview mirror. We are moving the business forward—we are committed to a growth plan. … We are just getting on with life, and that’s what I believe the rest of the business world has to do.
To my mind, there’s a great opportunity for real estate. Gradually, over a period of time, transparency in all markets is improving. … By transparency, (we mean) honesty in dealing with people, (simple, understandable business structures), legal guidelines, and visibility in pricing and returns.

Q: On another front, what operational and strategic challenges are on your mind these days?

A: (In running) an advisory business, an investment management business, there is a whole raft of continual improvements. The challenge is in technology, in training people, in hiring the best people, in joining up businesses between countries.
All of these are challenges that any business wanting to grow can address. We at Jones Lang LaSalle have always chosen a comprehensive approach to the demands of growing a business. Because as a business we are very collaborative, we’ve deployed methods for moving all these agendas forward.
The big challenges of developing all those areas of a business are ones that we are (approaching) on an increasingly worldwide basis. To me, the challenges are managing a very broad-based business going forward in the most efficient possible way, making sure that the best practices are spread. We are increasingly finding ways of connecting up our businesses, client needs and business systems around the world.

Edward Mermelstein is a real estate attorney and founder of Edward A. Mermelstein & Associates. He helps foreign and US entities find and purchase real estate in the US and abroad. He is also the founder of Mermelstein Development – a subdivision of his firm engaging in the acquisition, ownerships, investment, management and development of residential, commercial, and mixed-use properties.

Mermelstein spoke with MHN Online News Editor Anu Kher about the commercial property loans crisis in the U.S., its impact on banks and lending institutions and how the government can deflate the bubble before it bursts.

MHN: What is the problem facing commercial property loans and will be it be as big as the single family mortgage crisis?

Mermelstein: No one has a full grasp of how big this is going to be. It depends on the government and the lenders. Right now lenders are holding on to non-performing notes that today are worth only 50 to 80 percent of what they were when loaned against the property. Instead of starting the foreclosure process, lenders are extending notes, which is causing an artificial condition. There are trillions of dollars on lenders’ books but they are actually worth only 50 percent of that. The government is not forcing lenders to mark the notes down.

MHN: What is causing this?

Mermelstein: Commercial property values are in a free-fall, vacancy rates are soaring, and refinancing is no longer an option.

MHN: When is the bomb expected to go off?

Mermelstein: The bubble could either burst or deflate gradually over time, depending on how the government regulates the lenders’ books. Unfortunately, nothing can be done from the investor and owner side to alleviate this situation. The lender cannot go on extending the notes indefinitely. Eventually the house of cards will crumble.

MHN: How many banks are likely to fail due to this problem? And how will this affect the overall economy?

Mermelstein: Right now the government is artificially keeping several banks afloat. But in the next few years, about 1,000 lending institutions are expected to fail. They cannot be allowed to fail all at once, because this will cause a major loss of confidence in the banking system, which is not good for the overall economy.

MHN: What percentage of these problem loans are multifamily?

Mermelstein: While I don’t have this figure with me, this is more of a problem for the office, retail and hotel sector. The multifamily sector is in much better shape because there is liquidity in that sector due to the agencies and some lenders as well.

MHN: What can be done to prevent a disaster from happening?

Mermelstein: My concern is the rate at which banks will be going under. As long as the closings are controlled by the government, we should be okay. It depends on whether, going forward, the non-performing notes will increase at a rate that can be controlled?

MHN: When do you think recovery will take place?

Mermelstein: There is some increase in the returns that investment banks and trading firms are now seeing. So the freefall will stop in the next six to eight months. But in terms of a recovery, I think it’s going to take at least another six to eight years.

MHN: What happens to the properties with the non-performing loans?

Mermelstein: Most lenders are extending these loans, or are starting the foreclosure procedure. In a place like New York, it takes about one to two years to fully recover the asset but the lender is just accelerating the final outcome. Lenders discounting what’s on their books by 10 to 15 percent on a quarterly basis, because they won’t be able to take the loss all at once.