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Industry Executives Believe 2010 Marks the Bottom of the Real Estate Cycle; Workouts, Loan Extensions to Intensify but Not at Steep Discounts
(New York) May 4, 2010 – Faced with billions of dollars in commercial real estate debt coming due, the industry refuses to panic, sensing that the bottom of the cycle is upon us, according to DLA Piper’s 2010 State of the Market Survey.
Responding to this bottoming out process, the outlook of the US commercial real estate industry remains largely bearish but is noticeably improving as bullish sentiment has begun to gain momentum.
The survey, measuring the attitudes and perspectives of 308 top executives within the US commercial real estate market, reveals that 6 out of 10 respondents (60 percent) describe themselves as bearish, down from a record high of 90 percent in September 2008 when DLA Piper last surveyed the market just days after the collapse of Lehman Brothers and the sale of Merrill Lynch to Bank of America. Bullish responses, consequently, quadrupled from 10 to 40 percent.
Meanwhile, the majority of respondents (60 percent) believe that the real estate markets have already reached, or will reach, bottom in 2010. Looking ahead, respondents expect that workouts and loan extensions will be the two most prominent strategies used to navigate this recovery as waves of commercial real estate debt come due between now and 2014.
“After the most grueling downturn the industry has ever seen, there is a genuine sense of stability beginning to return to the marketplace,” said Jay Epstien, chair of DLA Piper’s US Real Estate practice. “From this point, the recovery will hinge in large part on workouts and loan extensions but the real wild card is job growth that would drive renewed real estate demand in virtually every asset class.”
According to DLA Piper, the survey yielded a number of other interesting conclusions, including:
• 2 out of 3 respondents believe that the federal government’s TARP, TALF and other real estate-focused programs have done “enough” to stabilize the real estate marketplace.
• Consistent with this view, the majority of respondents (70 percent) don’t expect any additional federal legislation focused on aiding the US commercial real estate market.
• 6 out of 10 respondents (60 percent) do not expect the CMBS market to return in time to help refinance the more than $150 billion in CMBS loans coming due in the next two years.
• Respondents do not expect workouts to yield deep discounts with lenders: 61 percent of respondents expect that the largest loan write-offs will range between 11-30 percent.
• Armed with war chests of new capital, respondents expect private equity and hedge funds (37 percent) and REITS (29 percent) to be the most active investors during the next near.
• Multifamily (37 percent) ranks as the most attractive investment opportunity during the next 12 months, while hotels (25 percent) rebounded from last place in 2008 to finish as the second most attractive investment opportunity.
In addition to the raw data captured, survey respondents shared some interesting perspectives when asked whether they thought regulators should do anything further to stimulate the recovery of the US commercial real estate market.
Real estate executives reached a consensus, pointedly answering that they do not want any further federal assistance. One respondent aptly described the matter by stating, “Let the cards fall where they may.” Other respondents agreed that regulators should “get out of the way” and “stop interfering.”
The survey coincides with DLA Piper’s 2010 Global Real Estate Summit in Chicago on May 4, which is attended by many of the executives who participated in the survey.
For a copy of the full results of the survey, please contact Brian Kiefer at 312-252-4113 ([email protected]).
About DLA Piper (www.dlapiper.com)
DLA Piper has 3,500 lawyers in 29 countries and 67 offices throughout the US, UK, Continental Europe, Middle East and Asia. In certain jurisdictions, this information may be considered attorney advertising.
About DLA Piper’s Real Estate practice group
Consistently ranked as the world’s top real estate practice by leading industry research firms with more than 175 real estate lawyers in offices throughout the United States, and more than 500 throughout the world, DLA Piper provides a full range of transactional and advisory services to real estate-related firms, including 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.
Jay Epstien, Chair, US Real Estate Practice, DLA Piper, 202.799.4100
Brian Kiefer, Media Relations, Greentarget, 312.252.4113