Real Estate Forum - February 2008

Southeast. “I’m very bullish on the market right now,” he stated. “There are some incredible values to be had. Now is the time to purchase, improve performance and position for the turnaround in one to three years. The turnaround will be quick and powerful and will happen inside of one to two quarters.”

“Under-valued public companies will continue to be targets,” said a SVP/partner at a brokerage firm in the Northeast.

As for international investments, they may look tempting, but a vice president of acquisitions at a private equity firm in the Southeast sounded a note of caution: “Offshore investments could get squashed by too much capital chasing too few investment-grade opportunities as well as currency and political risks.”

Asked which segments will be the most interesting to watch in 2008, once again, the responses reflected the current focus on fiscal issues as nearly 52% pegged finance as the most intriguing area, and CMBS garnered 42% of the first-place votes. Last year, acquisitions earned the top spot, at 31%. This year, the investment sales scene was still a popular number-one vote getter, catching 34% of the ballots.

Specifically, those polled wondered if the present tumultuous state of the capital markets will persist into 2008. “It will be interesting to see the effect of a stagnated CMBS market on a previously liquid real estate market,” stated a vice chairman at a national investment bank. “Over the past 10 years, it has grown to be a large force in providing capital.”

“Watching the CMBS debacle play out should be a hoot,” quipped a president of national financial firm. “Financing availability will also be a key.”

In an interesting twist, TICs, which were barely on the radar screen of last year’s participants, ranked among the top three. In 2007, a mere 12% placed the tenant-in-common sector as the number-three area of interest. This year, 51% ranked it as third—and not for positive reasons.

“The TIC market is in trouble,” declared a senior director with a brokerage firm in the Northeast.

A CEO with a national financial firm echoed those sentiments: “TICs are aiming for a meltdown if they don’t clean up their act.”

Also worthy of a watchful eye is how national economic issues impact leasing activity, which 40%

checked as the third area of interest in the coming year.

“As the economy continues to slow, it will be interesting to watch how badly rental rate growth is impacted,” stated a principal with a private equity firm out West.

“I’m interested in whether lease rates will increase on commercial properties in general,” said a senior appraiser in the Northeast.

“This could make or break commercial markets by putting legs underneath irrationally low

say finance will be the most interesting industry segment to watch in ʼ08.

expect to make a moderate investment to grow their business.

Not all the questions dealt with industry-wide matters. Just like in 2007, participants in this year’s survey were asked which areas would their companies focus on as the year progressed. Hiring young talent was number one, fetching nearly 29% of the vote a year ago. However, in 2008, cost containment came in first, with 57.7% of those polled. At 34.7%, hiring young talent was next.

“Got to manage that G&A (general and administrative costs),” wrote a director of investments for a REIT in the Southeast.

Taking second place slots were promoting diversity and new technologies (43% each); education/professional development (41%); and sustainable workplaces/green building (35%).

In the 2007 poll, education/professional development was picked number two by 33% while promoting diversity was slotted second by about 13%.

“We have a significant number of highly trained people who will be retiring in the next 10 to 15 years. Hiring and training great young talent is a challenge,” said a Midwest-based broker.

With all the emphasis on green building methods nowadays, it is perhaps not surprising that sustainability made quite a leap from the 11% of participants who ranked it number two last year. “Creating a sustainable future for our environment is an idea long overdue in this country,” said the vice chairman of the national investment bank.

But in the more immediate future, those who participated in our survey expect to make a moderate investment in order to grow their business over the next 12 months, with 54.1% checking off that option. That nearly mirrors the response of the prior year, when 46% said they planned to make a modest cash outlay.

Nevertheless, a further drilling down into the tabulations indicates the chill that has descended over the marketplace. In 2007, 32% foresaw considerable investment in their business operations versus 21% in the latest survey. This year, only 3.7% marked the response for “great investment” as compared to 8.4% in 2007.

In their comments, the respondents seem to suggest the year ahead will be tough (“Be careful…be very careful,” warned one Northeast-based CEO), but opportunities can still be found.

“From a brokerage perspective, we expect to work exponentially harder to maintain a volume of business at a fraction of the pace of the last few years,” stated the investment bank vice chairman.

Said the president of a national third-party services provider: “Periods when the markets are in the doldrums have proven to be the best time to upgrade and invest in order to be ready and at the front of the pack when the markets return.”