Bad Market Tempered By Optimism

WASHINGTON-Senior real estate executives anticipate access to capital may improve slightly in the next 12 months, yet they indicate that current conditions in the income-producing real estate sector, such as office buildings, shopping malls, warehouses, hotels and apartment buildings continue to erode, according to the Real Estate Roundtable Sentiment Survey for the second quarter of 2009.

"If current conditions are allowed to weaken further, the possibility of widespread commercial real estate loan defaults will transform today's threat into an ominous reality," said Roundtable CEO Jeffrey D. DeBoer. "The nation's frozen credit markets currently do not have the capacity to meet a looming wave of commercial real estate loan maturities. But from the depths of today's market, our survey suggests a glimmer of hope."

Mr. DeBoer added that the Term Asset-Backed Securities Loan Facility and Public-Private Investment Program must be properly engineered to bring liquidity to real estate credit markets. The Roundtable's Sentiment Survey shows that most senior executives believe asset values are continuing to slide as access to capital remains constricted, yet think that conditions will be "somewhat better" a year from now. This view is reflected by a slight rise in the Overall Sentiment Index, which registers at 41, up from last quarter's score of 38 and its low point of 33 six months ago.

The Roundtable's Overall Sentiment Index is measured on a scale of 1 to 100 and is calculated based on the average of future and current indexes. For example, to reach an overall index of 100, all survey respondents would have to answer that conditions are "much better" today compared to one year ago, and will also be "much better" 12 months from now.

A significant majority of the more than 120 survey respondents continue to report eroding market conditions, with 83% saying real estate markets are worse today than one year ago.

But when asked their perspective on today's market compared to one year from now, 59% of respondents said they expected conditions would be better. One executive offered a small measure of optimism for the future, saying, "I believe stock market pricing will get better, but the private market will get worse. The public markets are a leading indicator and they seem to have found a floor."

Respondents to the survey also expect little improvement in pricing in the next 12 months. Virtually all (99%) executives said real estate values were lower than one year ago, while only 24% of respondents expect values to be somewhat higher one year from now.

Nearly all the executives surveyed said access to capital remains limited as debt and equity markets have tightened, although conditions have improved slightly, with 88% thinking debt availability has deteriorated from a year ago, yet 69% thinking debt capital availability will improve in the next year.

Most respondents (86%) think equity financing has deteriorated from a year ago, yet 68% think it will improve in the next year.