As published in Scotsman Guide's Commercial Edition, March 2011.
Every year, the Urban Land Institute (ULI) and PricewaterhouseCoopers ask industry experts what they foresee for the real estate market in the coming year. The 32nd Emerging Trends in Real Estate report brought together insights from 875 industry professionals this year. According to ULI's senior fellow of finance, Stephen Blank, what makes the report special is its methodology. "It's the best and the brightest very willingly sharing their observations," he says. Blank discusses some of the report's predictions for the year ahead.
This year's report says we're entering into an "era of less." What does that mean?
When we talk about the era of less, we mean less transactions, less development, less financing available, lower profits and less people in the business. We are coming out of an era [that had] a tremendous amount of wreckage, and it's going to take some time to sort through that. I think it's getting a little better for 2011, but it's slow.
What markets may make a comeback?
At this stage of an economic recovery, hotels are a natural place to look. You can raise room rates on a daily basis. As business travel starts to come back and vacation travel comes back, the hotel industry benefits. Our survey says that while hotels are clearly a good timing play today, you have to be careful. Resort hotels require high capital expenditures to keep them fresh and clean, and limited-service hotels tend to get overbuilt.
What trends do you see in financing?
Commercial mortgage-backed securities are making a dramatic comeback. There's $13 billion in deals projected for the first quarter of 2011, which is 100 percent of what we did in all of 2010. The insurance industry is doing well, and they have plenty of capital. They are cautiously aggressive in doing transactions. The availability of debt capital is improving. Deals are getting done.
Will transactions and development go up in 2011?
I think there will be a higher amount of transactions. You're going to see the lowest amount of new development that many people have ever seen in their careers, however. It's hard to say that we need any more [of any kind of property]. We have record-high vacancy rates, so we have a long way to go before we need more.
What should brokers look for?
They can look for the strongest borrower and the strongest property, but a lot of times you have to play the hand you're dealt. I think the answer is establishing and re-establishing relationships with financial institutions, commercial banks and insurance companies, as well as understanding clearly how they're underwriting deals.
Jennifer E. Garrett is an associate
editor at Scotsman Guide.
Reach her at (800) 297-6061 or email@example.com.