Friday Letter Clarity at PREA

If clarity were a commodity trading on the world’s stock exchanges its price would be going through the roof right about now. 

With the collapse of Bear Stearns, the seizure of the debt markets and the ambiguity over just how long the credit crunch will last, private equity real estate professionals were in need of a little lucid thought. That’s probably why 700 delegates descended on the Pension Real Estate Association’s spring conference in Boston this week. They were in search of clarity, and maybe just a measure of reassurance to boot.

Of course the industry understands only too well how the market has found itself in the position it’s in. The question now on people’s lips is ‘just how long will it all last?’

‘Just how long’ is naturally the age-old economic conundrum, and unfortunately nobody in Boston had a crystal ball with which to provide an explanation. But for many, despite all the doom and gloom prophesied in the media, there was also a sense that the dislocation facing the US economy in particular was also presenting opportunities investors had not seen in decades.

Prices and valuations were no longer like those of the boom periods of 2006 and 2007, but at more realistic levels. In fact as one real estate expert told delegates, the credit crunch had at least returned the real estate industry “back to the real estate professionals” instead of at the mercy of financial engineers.

He went on to stress that obviously GPs must first ensure their own infrastructure – their portfolios and balance sheets – were in a secure position, but that the fundaments were now in place to make some amazing deals.

Yes, there would be some more “blood on the streets” for overexposed firms – Bear Stearns chief executive officer Alan Schwartz was the most obvious victim of the credit fallout and a telling absentee from the conference after being scheduled to take part in the CEO panel debating the current crisis. But for those that hold their head and their nerve, the opportunities are potentially great.

And although professionals departed Boston not knowing for sure exactly when the market would ‘bottom’ out (or indeed whether it already had), they left with a sense that the near future could start looking just a bit brighter.