Thursday, September 17, 2009

The "Recession is Over" but Commercial Real Estate Investors Sidelined by Uncertain Market

On Tuesday, Federal Reserve Chairman Ben Bernanke proclaimed, at long last, that the recession is "very likely" over.

What impact will the end of the “great recession” have on real estate investors?

It will largely depend on the asset class, region and investment objectives, but the general consensus is that the big, gut-wrenching price drops have already been factored in, and that, although prices continue to decline, the rate of decline has ebbed.

And what might some investors be waiting for? Blood in the streets, or in common parlance, distress, defaults, and foreclosures.

According to the third quarter 2009 PricewaterhouseCooper Korpacz Real Estate Investor Survey, released on Wednesday, most equity investors have remained on the sidelines waiting to capitalize on forced sales and more motivated selling on the part of distressed owners…

"Investors are mostly waiting because of a lack of motivated and forced selling on the part of distressed lenders and property owners," Susan Smith, director of PricewaterhouseCooper’s real estate advisory practice… "Although most investors feel that market conditions will continue to deteriorate over the next several months, the extent of the further deterioration is not so great that they believe that buying now is considered 'bad.'" [Commercial Property Executive]
So, what is an investor to do today? Circle patiently and swoop in when the best assets hit the auction block? Or, keep a canny eye on the market, and, knowing that competition is in retreat, “cherry pick” the best deals?

Both are viable strategies. There is no harm in waiting, especially in these uncertain times. But excellent, unique opportunities surface at unpredictable times, and investors should not turn a blind eye to these “deals” when they present themselves.