Back to Basics Approach Needed for Real Estate Companies to Emerge Stronger From...

Back to Basics Approach Needed for Real Estate Companies to Emerge Stronger
From the Economic Crisis

NEW YORK, March 24 /PRNewswire/ -- It is no surprise that the continuing
economic uncertainty throughout world markets and the lingering impact of a
global credit crunch are seen as the greatest risks faced by real estate
companies.

"In this time of great economic uncertainty and lack of liquidity, many
companies are proactively looking for ways to effectively manage risk,
streamline operations, and enhance their business relationships so they can
hit the ground running when markets begin to stabilize," says Howard Roth,
Global and Americas Real Estate Leader, Ernst & Young.

The 2009 Ernst & Young real estate business risk report, produced in
conjunction with strategy consultancy Oxford Analytica, itemizes the ten top
business risks faced by the industry as ranked by leading sector analysts. The
top ten risks this year in order are:

1. Continued uncertainty and impact of the credit crunch -- tighter credit
is just one threat to real estate from the crunch; the economic
downturn
is affecting commercial vacancy rates as well as property valuations.
2. Global economic and market fluctuations -- due to capital flows and
business expansion, the real estate industry has become a truly global
industry and, as such, is increasingly susceptible to global market
fluctuations.
3. Impact of aging or inadequate infrastructure -- particularly in the US,
but also in other markets around the world, a lack of key transit and
utility infrastructure is a threat to economic and real estate growth.
4. A global war for talent -- globalization of business has also created a
worldwide talent pool with countries forced to compete for human
capital.
5. Changing demographics -- aging and urbanizing populations are changing
competitive dynamics and creating new markets in real estate.
6. Inability to find and exploit non-traditional global opportunities --
with competition increasing worldwide from sovereign wealth funds and
others, many global investors face a tough time sourcing new deals that
will meet return expectations.
7. Pricing uncertainty -- with few transactions taking place in the real
estate market, valuations are a problem for existing owners, as well as
buyers and sellers.
8. Green revolution, sustainability and climate change -- real estate is
at
the forefront of the green movement with pressures intensifying to
build
and operate in sustainable ways and minimize the carbon footprint
throughout all types of real estate.
9. Economic vulnerability and regulatory risks in developing markets --
developing markets are a key focus for global real estate firms but
regulatory risk in these markets is constantly changing as authorities
seek to jump start economies.
10. Increasing energy costs -- few analysts expect more than a temporary
respite from high oil prices as new supply will be unable to meet
renewed demand.

Given the risks outlined by analysts in the report, it is time for owners,
investors and users of real estate to use the time afforded by this lull in
real estate activity to prepare their businesses for the next period of
economic growth.

"There will be a fundamental shift back to traditional real estate
underwriting principles, including comprehensive cash flow analysis and
prudent levels of debt and equity in consummating real estate transactions.
This 'back to basics' movement will lead to the greater transparency necessary
to restore confidence between buyers and sellers," says Roth.

The real estate sector has felt the tightening conditions in credit markets
perhaps more than any other sector due to its heavy reliance on capital.
Financial conditions for real estate projects are undoubtedly worsening and
the current financial markets landscape is expected to persist for the next
couple of years.

According to Mark Costello, America's Leader of Ernst & Young's construction
and real estate advisory services practice, "Real estate is typically the
second highest cost item on an income statement after payroll and so provides
excellent opportunities for companies to unlock hidden value, particularly
through a back to basics approach."

On the construction side of the industry, two out of three capital projects
are currently over budget or behind schedule, according to Malcolm Bairstow,
Ernst & Young's Global Advisory Services Leader for the real estate and
construction sectors, which he adds is a statistic exacerbated by the
uncertainty surrounding the economy and the availability of financing. "Yet,
deploying risk mitigation or accelerated delivery methods after careful
assessment of a project can also reduce risk and cost and bring in projects on
time and on budget," Bairstow adds.

"The real estate industry as a whole is focused on simplicity, transparency
and quality deals. However, when things are going really well it tends to mask
organizational inefficiencies," says Costello. "Companies which address those
issues now and solidify their businesses will be in a much better position to
address future risk threats."

About Ernst & Young's Global Real Estate Center
Today's real estate industry must adopt new approaches to address regulatory
requirements and financial risks, whilst meeting the challenges of expanding
globally and achieving sustainable growth. Ernst & Young's Global Real Estate
Center brings together a worldwide team of professionals to help you achieve
your potential -- a team with deep technical experience in providing
assurance, tax, transaction and advisory services. The Center works to
anticipate market trends, identify the implications and develop points of view
on relevant industry issues. Ultimately, it enables us to help you meet your
goals and compete more effectively. It's how Ernst & Young makes a difference.

About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory
services. Worldwide, our 135,000 people are united by our shared values and an
unwavering commitment to quality. We make a difference by helping our people,
our clients and our wider communities achieve their potential.

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Ernst & Young refers to the global organization of member firms of Ernst &
Young Global Limited, each of which is a separate legal entity. Ernst & Young
Global Limited, a UK company limited by guarantee, does not provide services
to clients.

This news release has been issued by EYGM Limited, a member of the global
Ernst & Young organization that also does not provide any services to clients.

SOURCE Ernst & Young

Andrew Neilly of Gallen Neilly & Associates, +1-925-930-9848,
andrew@gallen.com