Fresh Hopes and Fears in Realty Capital Markets, Says RECI

CHICAGO, IL, Jan. 11, 2010 - The start of a new decade adds fresh hopes and fears in the realty capital markets.


The Fed's persistence in supporting lower rates is helping to avert more financial suffering from increased cost of capital. Investors are encouraged to gravitate from low-yielding governmental debt.

Dual-personality investing prevails as many of these same investors seek relief on legacy assets, while trolling for fresh new assets based on more attractively reset prices.

How are capital markets positioned for this new decade and what are the key trends starting off the year?

· Oversubscribed Monies:

More funds exist than placement opportunities. Buyers expect lower prices and sellers don't want to realize heavy losses unless under duress. During the past year public funds (mainly REITs) raised more than twenty-five billion dollars of equity for income properties funds.

· Redefined Pricing Expectations:

Sellers are reluctant to unload legacy assets at deep discounts, contrary to market logic given today's stagnant economy. Investors targeting performing assets for traditional property types remain disappointed in trying to acquire seemingly distressed, value-add and Core-plus deals.

Overall returns of 20% or more targeting shorter holding periods are sparse in major markets. Such investors will need to expand risk horizons and lower return expectations to include longer holding periods, more diverse property types and non-gateway markets.

· Replacement Cost Metrics:

Investors willing to forgo immediate returns rise as winning bidders. Mostly private and overseas funds, these players understand values based on replacement costs, as well as currency plays.

Overall returns are ignored, instead focusing on extremely low costs per unit, assuring limited probabilities of competition from new construction over the long term.

· Rising Liquidity:

Last year numerous major investors reported plunging transaction volume levels of as much as 90%. As 2009, will be remembered for limited activities in the capital markets, this year should see more deals as financial institutions liquidate sub-performing assets.

However a dearth of activity is not expected; rather a modest pace at first.

· Looming Loan Maturities:

As much as a half-trillion dollar of debt will mature this year with limited prospects of refinancing other than the current funding sources, in most cases. Furthermore, 2011-12 maturities are at similar levels.

Many believe further government intervention will continue as few economically justifiable "rescue capital" solutions surface.

The Institute's Advisory Board Member, John Oharenko (top right photo) believes, "We're bouncing along the market bottom as values continue to slide, but a less dramatic levels."

He suggests, "Some of the greatest investment opportunities lie ahead, especially for those buyers willing to sacrifice current return and relying upon overall market momentum to improve during the next three to five years."

Call the Real Estate Capital RateLine at 7RE-CAPITAL (773-227-4825) for hourly rate updates.

Contact: Nat Zvislo, Research Director, Toll Free 800-994-RECI (7324), director@reci.com / http://www.reci.com/