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When you look back on the debacle created by real estate developers and their lenders, you are justified in asking how in the world they were allowed to act as they did.

Loans were made on developments at interest rates and amounts and on terms that prohibited profits. They were made on tax assumptions legislated out of existence years before. They were made without regard to market conditions.And, when you look on the commercial real estate scene today you remain justified in asking what in the world is going on. "The disease is not being recognized and therefore not being addressed," says Allen Cymrot.

As he sees it, the problems will continue until everyone involved faces the facts, recognizes that market value is determined by immutable forces rather than dreams, and adjusts accordingly.

Cymrot is a wily investor, a fellow who handled public real estate investment programs involving billions of dollars and who built up a personal portfolio as well - and then got out.

Today he's a trouble-shooter and adviser, proprietor of Cymrot Realty Advisers Inc., Los Altos Hills, Calif.

He left in the mid-1980s because, he said at the time, he could see the future and it was bad. The problem, he said, was that everyone, borrowers and lenders alike, seemed to have deserted the simple mathematical realities.

Money was borrowed at rates that precluded profit. It was borrowed - or loaned - on structures in already overbuilt communities. It was used on the shopworn assumption that real estate would forever appreciate in value.

More. It was invested in developments that no longer enjoyed the great tax benefits that existed in the early 1980s. It was invested in developments whose return couldn't match that available on alternative investment opportunities.

Lots of that real estate collapsed, as it was destined to, taking with it borrower, lender, investor, buyer, employee and more. As Cymrot points out, overleveraging and overbuilding are a deadly combination. Even today.

"In today's real estate market, the difference between 80 percent leverage and no leverage (all cash) could mean the difference of 95 percent occupancy vs. 30 percent occupancy required for breaking even."

It says a lot about today's markets. Some developments that banks are left holding were built not just with 80 percent leverage, but with 90 percent and even more. To boot, those percentages were based on crazy overvaluations.

Only reluctantly is reality being absorbed, and then only because there is no other choice. There are still investors out there, says Cymrot, creative ones, who believe that somehow what happened to others won't happen to them.

But negative spread, or borrowing rates that exceed the earning ability of real estate, cannot be "created" away. No, says Cymrot, it doesn't work that way. The truth is, he says, prices must fall into line.

"Real estate is still being priced as though tax benefits exist, that it remains a hedge against inflation and that there is a reasonable balance of supply and demand," he says.

He states flatly that it won't continue, that it cannot. What is on the market must be absorbed. It doesn't matter what the creative minds try to do, what the banks hope will happen or what developers pray for.

In short, the market will adjust no matter what the reluctant participants do to impede it. It is likely, he said, that all the following will occur:

Mortgage costs will decline to match operating expenses, deals will be priced in relation to mortgage rates, borrowing will be created to allow lower interest rates through equity participation, prices will fall into line with alternative investments.