Friday Letter One of those markets

Few people would ever profess to be able to call the bottom of the market. However it appears a consensus is emerging among private equity real estate professionals over when the best opportunities are to be had: in the second half of 2008. 

Despite more than $200 billion in credit write-downs and losses by the world’s largest banks and securities firms since the beginning of 2007, private equity real estate firms are getting excited.

Many in the industry are now saying that the timing is almost right to start taking advantage of the opportunities currently being placed on their doorstep.

Tom Barrack is one such commentator. The founder and chairman of Colony Capital is currently lining up long-time backers who are willing to move quickly and commit to having capital drawn down in a matter of a few months.

Barrack has already secured more than $1 billion in equity, with a plan to start investing in distressed property debt and operating companies with strong real estate components by mid-year. The opportunity fund is believed to have a hard cap of $2 billion. “Liquidity and dry powder are in the hands of people who understand that it is better to buy on the way up rather than the way down,” as Barrack himself recently noted in a letter to investors.

Real estate management firms, such as ING Clarion, have also added weight to the argument. The New York-based firm has forecast that certain segments of the asset class – namely offices and retail – are set to face “substantial” headwinds over the next two years as the credit crisis impacts on the country’s real estate markets.

But where there is weakness, there is also opportunity. As ING noted, retail stores going out of business in 2008 will provide owners with the chance of upgrading tenant quality and mix, and potential redevelopment.

As one executive told PERE, there were “attractive opportunistic returns” to be had. And “this is one of those markets” in which to achieve them.