DLA Piper 2007 “Credit Crunch” Real Estate Survey Reveals “Bearish” Outlook

Real Estate Markets Not Expected to Stabilize for 9 to 12 Months

NEW YORK– LAWFUEL – Law Firm Announcements –The strains of the subprime lending shakeout and resulting credit crunch have forced those in the real estate industry to abandon their “bullish” outlook for the U.S. commercial real estate market, according to a national survey conducted by global law firm DLA Piper.

The survey, measuring the attitudes and perspectives of 332 top executives within the commercial real estate industry, reveals that only 31 percent describe their 12-month outlook for the U.S. commercial real estate market as bullish. That number is down sharply from the 78 percent of respondents to DLA Piper’s “State of the Market” Real Estate Survey in April.

Consequently, 68 percent of respondents now describe their 12-month outlook as “bearish,” more than tripling the percentage of bearish responses from April (22 percent).

The market for public-to-private M&A has also cooled considerably since April, yet 62 percent of respondents still believe that the public-to-private trend will continue despite the credit crunch.

“The spike in optimism we witnessed in April has certainly reversed course,” said Jay Epstien, chair of DLA Piper’s U.S. Real Estate practice. “The uncertainty created by the credit crunch has overshadowed otherwise strong fundamentals for the commercial real estate market and slowed the previous velocity of deals, though many transactions continue to move forward.”

According to DLA Piper, the survey yielded a number of other interesting conclusions, including:

The overwhelming majority of respondents (61 percent) anticipate that it will take between 9 – 12 months before the real estate markets stabilize from the effects of the credit crunch.
The effects of the credit crunch on deals in the U.S. commercial real estate market have been widespread, led by tighter loan underwriting standards, increased spreads, increased equity requirements, and delayed or cancelled transactions.
— 63 percent of respondents have been involved in transactions which have been delayed or cancelled due to the credit crunch.

— One out of four respondents (27 percent) report witnessing an increase in loan defaults.

80 percent of respondents describe their 12-month outlook for the CMBS market as “bearish” and, as a likely result, 83 percent expect to see more conventional loans than CMBS loans in the next 12 months.
In addition to the raw data captured, survey respondents shared some interesting perspectives when asked to reveal what they think the Fed should do in response to the subprime mortgage crisis and so-called “credit crunch” on the U.S. commercial real estate market.

Sixty-three percent of respondents do not believe the Fed should take additional aggressive action to stabilize the credit markets following its Sept. 18 decision to cut interest rates by half a point, despite several verbatim comments to the contrary.

One respondent noted the Fed must do “whatever it takes to inject liquidity into the credit markets,” as it is “clogged right now.” Another added that it is the U.S. government’s responsibility to “take significant action to keep 2 million houses from being foreclosed and shore up our credibility in the financial markets.”

For a copy of the full results of the survey, please contact Brian Kiefer at 312-252-4113 (bkiefer@greentarget.net) or John Corey at 312-252-4102 (jcorey@greentarget.net).

About DLA Piper (www.dlapiper.com)

DLA Piper has 3,400 lawyers in 25 countries and 64 offices throughout the U.S., U.K., Continental Europe, Middle East and Asia. It has leading practices in corporate, finance, human resources, litigation, real estate, regulatory and legislative, tax, and technology, media and communications. 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, 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.

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