Market Correction Good for the Industry

(Read more on the debt and equity markets.)

Miller

NEW YORK CITY-The recent sizzling commercial real estate market in the US will slow in 2008, a healthy correction that will likely bypass long-term investors but penalize overleveraged buyers and late-to-the-game speculators. So says Urban Land Institute and PricewaterhouseCoopers LLC’s Emerging Trends in Real Estate 2008 report, at a special breakfast presentation this morning at the Four Season’s hotel in Manhattan.

Jonathan Miller of PricewaterhouseCoopers, the program presenter who has written Emerging Trends for the past 16 years, launched the program with a comprehensive 25-minute overview of the more than 70-page report. More than 500 people have contributed to the report and Miller noted that overall, interviewees were hopeful and are keeping their fingers crossed in regards to a healthy correction in 2008.

Miller believed that this year, the credit crunch has created a dose of fear and uncertainty will characterize 2008. “Fundamentals are still good,” he said, “but the economy is key and right now, with high household debt, declining household values, rising energy costs and basically stagnant wages, the economy is stressed.”

Emerging Trends Panel

The best bets for 2008 as far as investment goes, Miller explained, include: husband capital or building relationships; buy distressed loans; hold core properties; focus on global pathway markets; concentrate on operations; buy public REITs; buy broker, homebuilder and mortgage company stocks; staff up the workout teams; and use demographic strategies. As far as things to avoid in investment, Miller said to stay away from condominiums “unless you are buying distressed loans,” construction loans as “there is too much risk,” taking on extra debt, high-growth markets with soft fundamentals as “they’ll only get softer” and second- and third-tier markets as “investors need higher risk premiums.”

For development for 2008, Miller suggested thinking green, focusing on mixed-use and infill and said to build transit-oriented development. For property sectors, he says to buy multifamily, buy or hold industrial, buy residential building lots, but to exercise caution in office and hotels and to “chill on retail.”