Sule Aygoren Carranzais associate editor of Real Estate Forum magazine.

SAN DIEGO-The net-lease market for 2005 looks good, but there are some red flags to watch for. That was the consensus at Capital Lease Funding Inc.'s 10th Annual Correspondent Briefing, held this morning at the Mortgage Bankers Association's Commercial Real Estate Finance/Multifamily Housing Convention and Expo here.

According to William Pollert, president of CapLease, the economy will continue to improve gradually this year, although inflation will be "on everyone's radar screen." Additionally, the record current account deficit of $670 billion, among other issues, is a cause for concern. "While we can't put a specific number on the 'uglies' threatening the market, the point is there's a risk overhang that's greater today than ever before."

The real estate market will subsequently mimic the economic recovery. While fundamentals will continue to be relatively weak, Pollert said improvement will be confined to specific segments. Capital flows will continue to be strong due to a lack of attractive alternatives and a strong CMBS market of about $85 billion to $90 billion.

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