Yellow Flag Raised for CRE

With commercial real estate markets still in the doldrums, investors should take a cautious approach to acquisitions next year, according to Jonathan Miller of Lend Lease Real Estate Investments Inc., New York."We are raising not a red flag, but certainly a yellow flag," he told real estate executives at a breakfast meeting in Washington. Mr. Miller, the editor of Lend Lease's "Emerging Trends in Real Estate," noted that property expenses are increasing due to security concerns and rising taxes. In New York City, the mayor is seeking a 25% increase in property taxes. Although capital is flowing into prime properties in downtown areas, such as Washington, rents are falling in the suburbs and vacancies are close to 20%. "Around the country there is increasing concern about the real estate market," Mr. Miller said. "And there should be." Lend Lease expects that real estate returns will remain positive -- in the mid single digits -- in 2003 and that delinquencies will rise but remain manageable. Although some real estate investment trusts are under pressure to cut dividends, Lend Lease expects REITs to be a "leading indicator" of a recovery that could take place in 2004 or 2005.