43
by almost every market in the country. Housing remains a retail owners (70 percent) and office owners (67 percent). Nearly
key concern, but lay-offs and job losses are quickly becoming 40 percent of investors believe that property sales will continue
the top issue for real estate owners and investors. Jobs and to fall in the next six months, but the majority are forecasting
job growth are critical for income-producing real estate; as a smaller anticipated decline against the previous six months.
job losses mount, the outlook for real estate becomes more This positive sentiment can be attributed to an anticipated
uncertain. For the commercial real estate sector, two overriding improvement in the debt markets. Almost 50 percent of survey
issues will dominate the balance of 2009, and quite possibly respondents remain confident that holding onto properties is the
well into 2010. To some extent they are inter-related, but advised course at present, with six out of 10 investors looking
deteriorating fundamentals and the ability to refinance maturing at office stock closely followed by retail, undeveloped land, hotel,
debt are key themes that will be an immense challenge for mixed-use, industrial and apartments.
investors and lenders alike. Because occupancies will be lower
and rents reduced, refinancing will be increasingly difficult, Acquisition activity is also moving up the agenda, with 72 percent
with the need for substantial equity infusions for many of the of those interviewed confirming the accumulation of new capital
transactions done since 2005/6.” in preparation for buying opportunities. “This confirms the notion
that there is a lot of capital on the sidelines. As we get closer to
“The outlook has seldom looked as ominous, but whether the a convincing bottom in the economy, and at least some visibility
economy stabilises this year or next, this recession will end and on the impact of various government actions to improve lending,
the next period of expansion will begin,” he added. investment activity is likely to pick up,” remarked Hessam Nadji,
managing director of research at Marcus & Millichap. A reported
On a positive note, he said: “Already there are signs the next total of 51 percent of large investors are looking to raise US$50
up-cycle will be very different from the last. Less leverage will million or more for acquisitions. The attraction of distressed
be a certainty, limiting another round of cap rate compression. properties is likely to be the main target for monies raised, and
Consumer spending will be far more subdued as debt reduction just under 75 percent of respondents are expecting a moderate
will remain a top priority. Corporations will be far more careful to large volume of distressed commercial real estate properties
with working capital. As always, prime real estate will be highly to come up for sale in the next 12 months, according to the report.
coveted while marginal locations will languish until an alternative Apartments, hotel and industrial lead investor interest however,
use can be found. Previously high cost centres will struggle as obstacles including capital constraints, economic uncertainty,
corporations seek out the most cost competitive alternative. weak fundamentals and the continued gap between bid and ask
A new mindset, similar to that experienced during the post- prices, are blocking the route ahead to a certain degree.
Depression era, will be evident in many parts of the country. This
movement toward prudence will not extend indefinitely, but real The impact of federal government action, while being positively
estate investors should be cognisant of a more conservative received, has also raised concerns as to the impact and delay on
mindset for a considerable period of time. Fiscal and monetary discounting and asset sales. “Unlike the early 1990s, when the
policies are beginning to take effect, as demonstrated by a loan structures were on the balance sheet of fallen banks and
marked improvement in the commercial paper market, as well as S&Ls, in this cycle, securitisation has added more complexity,
for corporate bonds.” which has so far resulted in fewer foreclosures,” said Nadji, adding:
“Financial institutions are also focused in limiting further losses
In the REIT market, the National Association of Real Estate and foreclosures, helped by the recent changes in the mark-to-
Investment (NAREIT) delivered a more cautious 2009 scenario market rules. This is limiting the inventory of truly distressed
with H2 challenges revolving around the need to re-energise the properties, especially for high-quality assets. A total of 79 percent
stagnant credit market to enable debt refinancing. Specifically of investors interviewed, reported that they expect maturing loans
for the home financing sector NAREIT reports that while home to force more property sales over the next year with hotels, retail
financing REITs were down 20.02 percent for the year (2008), the and office sectors the most severely affected.
sector was up more than 14 percent in Q4, which could signal that
the worst expectations of the residential mortgage crisis may Summing up the situation, Nadji commented: “We are beginning
already have been discounted in the shares of these companies. to see properties come to market at more realistic prices, which
will begin to narrow the pricing gap over the next few months.
A slowdown in the decline in property values within the There is plenty of capital on the sidelines. Investors with a long-
commercial sector has been flagged in the 2009 Real Estate term view who are focused on quality assets are starting to get
Investment Quarterly research report by National Real Estate active again.” This is echoed by the US government, which is keen
Investor and Marcus & Millichap. A total of 467 property to maintain FDI interest. As a US Commerce Department official
owners participated in the survey and, as expected, owners of commented in January 2009: “America is open for business. We
undeveloped land saw the biggest drop over the past six months are the most open major economy in the world, and we welcome
with 71 percent of owners reporting a decline in values alongside foreign direct investment.”
t
PREVIEW Cityscape Dubai
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