ULI Survey Forecasts Recovery in 2010

Market timing is always an issue when evaluating whether or not to acquire a commercial real estate asset. While the old investment axiom of “buy low and sell high” summarizes the goal of all prudent investors, it also serves to paralyze many investors as they find themselves waiting for the “right time” to make their move. One of the smartest investors I know says, “the only thing that waiting for the bottom insures is that you’ll miss it.” A recent survey conducted by PricewaterhouseCoopers LLP., and the Urban Land Institute (ULI) forecasted that the US commercial real estate markets will hit bottom in late 2010, so in the text that follows I thought it my be useful to summarize the findings of the survey for those of you waiting for the bottom…

“Our report participants find that a sense of nervous euphoria is growing among liquid investors who can make all-cash purchases,” said ULI Senior Resident Fellow for Real Estate Finance Stephen Blank. “Those that are patient, daring and selective could score generational bargains on premium properties from both distressed sellers and banks that are clearing out unwanted bad loan and real estate owned portfolios. Respondents to the Emerging Trends cite the best investor bets for 2010 which include:

•  Deal with cash – Cash is the only way to operate and only the most liquid can take advantage of the emerging opportunities.
• Patience will be rewarded - Early is the new wrong as the economic uncertainty will hamper the recovery and absence of ready refinancing in comatose debt markets adds more risks.
• Focus on quality and be selective – Seek irreplaceable Class A properties with debt maturity in places like New York, San Francisco and Washington, DC.
• Stick to global pathways where recovery will happen more quickly.
• Buy cash flow and real yield – Anticipate creating value by filling vacancy and increasing rents over time.
• Provide financing as three to five year loans can deliver low teen returns.
• Implement asset management triage – Focus capital and resources on retaining and attracting tenants in properties with better long-term value.

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So, my question is this: will you sit on the sidelines with the masses and continue to watch and wait, or will you get in the game while the best opportunities are available with the least amount of competition? The choice  is yours, choose wisely…

Disclaimer: The PWC/ULI survey while indicating a belief that a market bottom is in sight, also cuations that a sluggish economy and the potential for rising interest rates could slow a rebound even when the recovery does start to get traction. Any investment decision should only be made after careful consideration and advice from your professional advisors.