You know that total gloom and doom have taken over when people start talking about how this real estate downturn is even worse than the early 1990s debacle, which was billed as an industry depression not to be repeated for generations. But that's the current vibe. Market psychology tips toward capitulation--"it's bad and its just going to get worse," says a former colleague at a major investment bank." Says another veteran at a well-known advisor--"This is definitely worse than twenty years ago, because everything is in the tank, not just real estate. It's a worldwide financial melt down."
The saving grace for some real estate pension fund advisors is "that real estate is a small part" of their clients' problems." Stock and bond portfolios, private equity investments, and other alternative investment forays have so far fared worse than property investments. In the early nineties, real estate value declines stuck out like a sore thumb for institutional investors, who threatened to swear off the asset class, and some did (until getting back in just as the cycle approached its peak).
The sharp turn around in fortunes probably exacerbates the despair. Only two years ago major advisors had queues of investors waiting to get into their open end core funds, which were throwing off mid to high teen returns.
Today industry players estimate pension funds are on waiting lists to pull upwards of $14 billion from these same funds, and returns have hit the skids in escalating writedowns. Losses will be greater in this round since some core managers pushed the limits on appropriate leverage in their most recent acquisitions and got caught up in the buying frenzy precipitated by even more highly leveraged opportunity funds.
Now some managers who were reluctant to start recording losses last fall push appraisers to register larger writedowns to get bad news behind and gain greater credibility with investors who anticipate the worst.
Most advisors have given up any hope of raising new money until markets reach bottom.
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
