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BTB Exclusive - The commercial real estate equity crunch

by Terri Thornton

June 25, 2008

We've still got a way to go before we hit the bottom, but there are bright spots in the real estate economy – that was the message from a panel of experts at a recent meeting of the Real Estate Investment Advisory Council, an exclusive group of top-level real estate executives.

The June 12 meeting at the Westin Buckhead featured Lubert-Adler Real Estate Funds Managing Principal Neill Faucett, GID President and CEO Bob DeWitt, Westplan Investors President Ewoud Swaak and Morgan Stanley Managing Director Seth Weintrob. Prudential Real Estate Investors Managing Director Dale Taysom moderated the discussion.

It's a tough time for both investors and developers, they agreed. Tight credit and dropping property values mean that equity partners are sitting on the sidelines waiting for the market to improve. As Morgan Stanley's Weintrob explained it, there's too much equity and too little debt. Swaak agreed, saying Westplan recently raised a new fund, but is having trouble finding the right deals to invest in.

"We're being very cautious," Swaak said.

DeWitt says the multifamily sector offers the best odds for higher returns, because of the number of people who have gone from buyers to renter, as well as the high number of echo boomers (children of the Baby Boomers) and people who want to buy, but can't.

Faucett agreed. "The demand for multifamily for the next ten years may be the best they've ever have," he said. He added that housing, and the related buying power of homeowners for things such as furnishings and appliances, accounts for almost one-quarter of the gross domestic product. "I think what we're finding out is how important the home building sector is to the economy," Faucett said. He added that it's hard to tell when the overall real estate market will pick up again, given the uncertainty in the economy, the political realm and the capital markets.

Taysom added that South America is a bright spot for development.. China holds promise as well. Chins is rich with capital, which he described as "wall of money," although no one has figured out how to tap it for U.S. real estate investments.

For more information on REIAC visit www.reiac.org.

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Terri Thornton
404-687-8760
404-932-4347 (Cell)
www.TerriThornton.com <http://www.TerriThornton.com>

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