Commercial property execs expect more bad news

Wed Aug 5, 2009 4:03pm EDT

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* 93 pct say real estate values are lower than last year

* 82 percent say values will continue to deteriorate

By Ilaina Jonas

NEW YORK, Aug 5 (Reuters) - An overwhelming majority of U.S. commercial real estate executives believe their industry is suffering and expect it get worse, according to a survey by the Real Estate Roundtable released on Wednesday.

Some 93 percent of the 120 chief executives, chairmen, presidents, board members and others polled said commercial real estate prices are lower than they were a year ago, according to the Roundtable, which represents commercial real estate owners, developers, lenders and managers.

Eighty-two percent expect values to remain roughly the same or erode further in the next 12 months, the survey said.

Hotels, office buildings, shopping centers, warehouses and apartment building owners and lenders have been grappling with declining rents and rising vacancies. Meanwhile, prices for these assets have sunk has the credit crisis has dried up sources to finance sales or refinance maturing loans.

Colin Dyer, chief executive officer of Jones Lange LaSalle, one of the world's largest real estate services companies, on Wednesday said that prices for U.S. assets have fallen by as much as 50 percent.

"Over the last year or so the commercial real estate industry has been stuck between a rock and a hard place," Jeffrey DeBoer, Roundtable chief executive said. "The rock that we see is the fundamentals, which continue to create problems for the industry. The hard place is continuing to not move and that is the frozen credit markets, in terms of getting the ability to finance or refinance debt."

So it's no surprise that the new overall sentiment index reading of 49 is well below the ideal of 100. The index questions about how responders feel about their business today in terms of values, and access to credit and capital, and how they believe their situation will be in a year.

"We're still in a very, very stressful situation," DeBoer said. "We continue to have a lot of problems in commercial real estate."

The Roundtable is pushing four proposals that could help get the lending market rolling. The Roundtable wants the federal government to establish a loan guarantee program to insure loans to make securities sold against those loans in the secondary market more attractive to investors. That would encourage lenders to continue to make loans.

The Roundtable also wants the federal government to set up public/private funds to buy new as opposed to legacy loans.

Additionally, the group is asking the government to modify the Real Estate Mortgage Investment Conduit (REMIC) rules that allow loans that have been securitized into commercial mortgage-backed securities (CMBS) to be extended and modified without risking the tax exempt status of the securitized trust.

Finally, the industry anticipates that hundreds of billions of dollars will be needed to fill the gap between mortgages that are maturing and new lower mortgages that would be provided if the lending market does return. The Roundtable is urging Congress to revamp the Foreign Investment in Real Property Tax Act of 1980 to attract more foreign equity to U.S. commercial real estate. (Reporting by Ilaina Jonas, editing by Leslie Gevirtz)

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