Developments at Lehman Brothers, AIG and Merrill Lynch Push Credit Crisis Past Savings and Loan Crisis; Real Estate Markets Not Expected to Stabilize until 2010
US (LAWFUEL) – Following September’s unprecedented events on Wall Street, the current credit crisis has now eclipsed the savings and loan crisis of the late ‘80s and early ‘90s as the event with the single-greatest impact on the US real estate industry from the past 20 years, according to a national survey conducted by global law firm DLA Piper.
The survey, measuring the attitudes and perspectives of 424 top executives within the commercial real estate market, also reveals a record level of “bearish” sentiment. Nine out of 10 respondents (90 percent) describe themselves as bearish, up sharply from 68 percent in October 2007 when DLA Piper last surveyed the market in its 2007 “Credit Crunch ” Real Estate Survey.
Initially surveyed between Aug. 27 and Sept. 5, the majority of respondents said the savings and loan crisis was the event with the greatest impact on the real estate industry but that sentiment changed in a follow-up survey conducted after Lehman Brothers filed for bankruptcy.
“On the heels of the Lehman bankruptcy, the unprecedented government bailouts of Bear Sterns, Fannie Mae, Freddie Mac and AIG, and the historic proposal of a $700 billion financial institutions bailout plan, we remain in a very fluid situation in the capital markets that likely will continue to bog down the US commercial real estate market until financing finally becomes available on a predictable basis again,” said Jay Epstien, chair of DLA Piper’s US Real Estate practice.
“Meanwhile, the bears are clearly alarmed by several of today’s similarities to the S&L crisis but a small group of contrarians is prepared to capitalize – no doubt searching for the types of tremendous opportunities that followed the S&L crisis,” Epstien added.
According to DLA Piper, the survey yielded a number of other interesting conclusions, including:
Following the recent developments at Lehman Brothers, AIG and Merrill Lynch, the majority of respondents (60 percent) report that the current credit crisis has now eclipsed the savings and loan crisis of the late ‘80s and early ‘90s as the event with the single-greatest impact on the commercial real estate industry during the past 20 years.
Building upon this sentiment, eight out of 10 respondents do not believe that the recent developments concerning Lehman Brothers, AIG and Merrill Lynch signal the ” bottom” of the cycle, nor do respondents think they provide the “first sign of light” at the end of the credit crisis tunnel.
The majority of respondents don’t expect securitized lending to recover and return to its previous market levels until at least 2011, while 16 percent reported that securitized lending will never again reach its prior levels.
Consistent with this outlook, the overwhelming majority of industry executives have concluded that the markets will not improve in 2009: the majority of respondents (62 percent) don’t expect the real estate markets to stabilize until 2010 and 22 percent don’t expect to see stabilization until 2011.
Two out of three respondents think that John McCain, if elected, is likely to have a more favorable impact on the commercial real estate industry than Barack Obama.
The majority of all respondents (51 percent) expect foreign investors to be the most active in the US during the next year and, consistent with that conclusion, nearly one in five respondents has engaged in a transaction involving investments from sovereign-wealth funds.
Beyond the hard data captured, survey respondents provided some interesting perspectives when asked to share what their primary challenge is today facing their real estate businesses.
One respondent noted that the “wait and see attitude of all participants [is] killing activity. ” Another summarized: “The primary challenge in today’s market is the lack of available debt and increasing spreads between buyer and seller pricing.”
For a copy of the full results of the survey, please visit: http://www.dlapiperresummit.com/resummit/survey/survey2008results/
About DLA Piper’s Real Estate practice group
Consistently ranked as the world’s top real estate practice by leading industry research firms, DLA Piper continues to diversify its real estate practice by expanding is global capabilities through the addition of leading practitioners throughout the world. With more than 250 real estate lawyers in offices throughout the United States, and more than 550 throughout the world, DLA Piper provides a full range of transactional and advisory services to real estate-related firms, such as developers, investors, lenders and asset managers. The firm also provides advice relating to acquisitions, dispositions, financing, leasing, entitlements, economic incentives, corporate facilities and related legal services to its clients.List your legal jobs on the LawFuel Network