"It has been challenging," Merin conceded. "There was a big disconnect between buyers and sellers in 2008, but there at least were carryover sales. In 2009, things got worse because the carryover was gone." And while there is a lot of money ready to invest in 2010 and "a lot of people are waiting for properties, what we are seeing now are mainly 'cats and dogs' in terms of the quality of properties hitting the market.
"For the right core properties, people are looking for safety, they're looking for credit, and they're looking for term," Merin continued. "For that kind of product there is a very healthy appetite because the alternative is to leave your money in the banks, earning less than 1%. So a 7% to 8% return sounds pretty good." And when sales do occur, "we hope to see low cap rates and high prices per-square-foot," he said. "That is going to get a lot of people to re-look at their portfolios and think about putting some properties on the market."
Joseph Taylor, president of Matrix Development Group, moderated the panel, which also included Kevin Welsh of CB Richard Ellis and David Welsh of Normandy Real Estate Partners. Kevin Welsh concurred on the sharp drop-off of trading volume and also placed the drop in real estate values in the 30% to 40% range. "But I believe we are in the early stages of recovery," he said, citing the amount of liquidity on the market and that the pension funds "are coming to life."
Not wanting to sound "too bullish," however, he noted that market fundamentals are still weak including all-time-high vacancy rates, and that "we are in the early innings of distress. The reality is that $270 billion of loans matured this year and 40% of those loans had negative equity. Next year, 50% of those loans are going to have negative equity."
David Welsh also agreed on the sharp drop in activity, noting that "many sellers aren't even in control of the decision to sell. Their equity is totally underwater and if they did sell, values would be under their mortgage and they would get nothing." He, too, was encouraged by signs of recovery noting, "the lending markets for new acquisitions have clearly loosened up, and there is aggressive competition for high-quality loans."
Ultimately, panelists concurred that a broad economic upturn is what the commercial real estate market needs for a true jump-start. "We need to see an improvement in jobs to get real estate to be attractive to investors again," Merin concluded.
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