Panelists at Tropical Storm signaled that a shift in real estate lending was taking place

Over 120 top real estate financiers, investors, developers and consultants from the CEE region gathered in Budapest last week to discuss the effects of the global financial crisis on the industry and to try to give a forecast for the future. Key note speaker Christoph Rosenberg, senior regional representative for Central Europe & Baltic States at the International Monetary Fund, said that providing liquidity support to banking systems might work for the short-term, but underscored a different solution was urgently needed for the long run.

"Establishing joint responsibility for financial stability in the EU, cross-border financial stability arrangements and strengthening of cross-border supervision are among medium-term solutions," he said.

According to Rosenberg, external shocks, such as rising commodity and energy prices, will put emerging Europe to the test. "Countries like the Czech Republic or Slovakia are more exposed, through the car industry, for example, and it will be a challenge for them to engineer a soft landing, whereas Poland, with its strong domestically driven economy, is more likely to experience a softer landing," he said.

Turning their banks on us

Banking sector representatives signaled a total shift in real estate lending terms. Markus Leininger, head of corporate banking for Northern and CEE at Eurohypo AG, a German real estate, corporate and investment bank, said that in these times "cash is king" and banks will not talk with customers about financing developments until next year. He added that it would take time for interbank trust to return, as the dust hasn't settled yet and banks need to reassess their risks.

"We would like to lend, but we just can't," said Leininger, who compared the banks to patients in an emergency room. "In 2010-11, the patient will be released from the hospital," he added, underscoring the need for stronger regulation and effective bank supervision.

"Even when banks stabilize, they won't be able to lend money instantly," said Walter Hampel, senior director EMEA at Hypo Real Estate Group. He agreed with Leininger that banks needed to get back to basic "bread and butter business," and start to be "boring" again.

Bank representatives listed a number of features which will be characteristic of their lending models for the near future. These included: simple lending structures; 50 percent loan-to-value ratios; higher loan costs; and shorter loan terms - a maximum of five years.

In need of a hero

Asked who could save the industry, Timo Tschammler, managing director at DTZ International in London, pointed to sovereign wealth funds that are rich in cash and possibly also Middle Eastern investors. "Canada, with over five million members of pension funds, can also turn out to be a potential savior. In 2007, Canadian funds acquired EUR6.31 billion worth of property," he said.

Daniel Harris, head of CEE acquisitions at real estate investment advisory MGPA, said that these were nervous times in the office sector. "Tenant demand will fall significantly in the office market," said Harris. "In retail, [however,] Poland will have 30 percent more shopping centers in 2011 than it has now," he predicted.

Forum participants agreed that a "flight to quality" would drive the real estate sector in the near future as yields decrease, supply drops significantly and vacancy rates soar. Investors are expected to target the highest quality assets in the buyers' market.

Tropical Storm CEE Insight Forum was a CEE Quality Awards event. Warsaw Business Journalwas a media patron of the event