Commercial Real Estate Distress Far From Over, Survey Shows

Property Values Still Falling, Capital Markets Still Extremely Weak

WASHINGTON, Nov. 2 /PRNewswire-USNewswire/ -- With high unemployment pushing
up vacancies, no credit capacity and property values plummeting, commercial
real estate markets remain extremely stressed with little prospect for
significant near-term improvement, according to The Real Estate Roundtable's
latest quarterly survey of senior commercial real estate executives.

All three indices tracked by the "Sentiment Survey" have risen considerably
since the near-collapse of financial markets last fall -- a reflection of
respondents' collective sense of relief at having survived the worst of the
turmoil, and the extreme uncertainty and paralysis of last year giving way to
a greater sense of acceptance of market realities. However, the latest
numbers -- particularly the "Current Conditions" reading of 56 -- remain well
below the ideal of 100. An overall index of 100 means all survey respondents
have answered that conditions today are "much better" than they were a year
ago, and will be "much better" 12 months from now.

"The problems now are more clearly defined and there's a grim sense of reality
setting in, but that's a long way from saying markets are stabilizing or that
conditions are on the mend," said Roundtable President and CEO Jeffrey DeBoer.
"With job losses mounting, consumer confidence in the doldrums, and a relapse
of the recession still possible, additional policy action is needed to restore
credit availability -- the lubricant of the economy and job creation -- and to
address the equity shortage resulting from falling commercial property
values," DeBoer continued.

An overwhelming majority of the 100+ respondents in the Q4 survey said
property values are down today vs. a year ago, although the percentage
declined to 77 percent from 93 percent in the previous quarter. But
respondents were far from optimistic about future valuations, with 71 percent
saying they expect values to remain "about the same" or to erode even further
in the next 12 months.

"So-called 'zombie buildings' and empty storefronts on Main Street will only
mean bigger budget shortfalls for local governments, more layoffs for
construction, hotel and retail workers, and further devaluation of investment
portfolios held by individual and institutional investors," DeBoer added.

"If there is any good news to report, it's that the trillion-dollar
refinancing crisis in commercial real estate now has the attention of
policymakers at the highest levels -- including President Obama." Fox
Business News reported Oct. 16 that the President had been briefed recently by
his top economic advisors about rising "maturity" and "performance" defaults
on commercial mortgages and what this might mean for the U.S. banking system.

Capital market conditions remain extremely fragile, the survey shows, but
there is now a greater mix of perspectives on the markets' trajectory. On the
debt side, 28 percent of those polled said credit availability is worse today
than a year ago, compared to 71 percent who said so in the previous quarter.
The percentage who characterized equity availability as worse today than one
year ago also dropped significantly -- from 55 percent in the 3rd quarter to
17 percent in the latest survey. As with the Fed's latest "Beige Book" report
last week, DeBoer cautioned, any signs of "improvement" or of a leveling off
in the rates of decline should be looked at in the context of where things
were 12 months ago.

Not surprisingly, given the depth of dysfunction in commercial real estate
debt markets, almost all participants in the current survey (95 percent)
expect debt market conditions to be at least the same or better 12 months from
now.

Although U.S. policymakers have adopted or implemented several policy
recommendations offered by The Roundtable in its "Five-Point Liquidity Plan"
this past year, additional steps are needed to reconnect loan originators and
secondary markets; bring new equity into commercial real estate (primarily,
through reform of the Foreign Investment in Real Estate Property Tax Act
[FIRPTA]); and to improve the Term Asset-Backed Lending Facility's (TALF)
ability to foster new issuance of commercial mortgage-backed securities
(CMBS).

The quarterly Sentiment Survey seeks to capture feedback from a broad range of
real estate industry segments, asset classes, ownership vehicles and capital
structures, including owners and asset managers, financial services firms and
operators. It is administered for The Real Estate Roundtable by FPL Advisory
Group of Chicago. A PDF of the entire report is available online at
www.rer.org.

The Roundtable brings together leaders of the nation's publicly-held and
privately owned real estate ownership, development, lending and management
firms with the leaders of national real estate trade associations to jointly
address key national policy issues relating to real estate and the overall
economy. Collectively, Roundtable members' portfolios contain over 5 billion
square feet of office, retail and industrial properties; over 1.5 million
apartment units; and in excess of 1.3 million hotel rooms.

SOURCE Real Estate Roundtable

Xenia (Ksen'ya) Jowyk, xjowyk@rer.org, or Scott Sherwood, sherwood@rer.org,
both of Real Estate Roundtable, +1-202-639-8400