Not a marketplace for ‘normal solutions’

Heitman chief executive officer Maury Tognarelli warned that the need for US banks to protect their balance sheets, coupled with regulatory pressure, is preventing financial institutions from foreclosing on troubled assets. This phenomenon could last up to four years, he said, but opportunities for deals should emerge in the next 12 to 18 months.

The US real estate market can expect another three to four years of the so-called “extend and pretend” pattern,  said Heitman chief executive officer Maury Tognarelli.

Speaking at the Old Mutual Asset Management Risk and Opportunities panel in New York today, Tognarelli said that regulatory pressure, low interest rates and the need for banks to protect their balance sheets was responsible for the phenomenon.

Looking at the rest of 2010, Tognarelli said that his Chicago-based real estate investment firm was paying particular attention to real estate fundamentals, which he said had bottomed out or were beginning to turn positive for many sectors.

“We think that’s good,” he said. “We’re especially seeing that specifically in the apartment sector, and it’s been a theme that has existed for more than a couple months.”

Tognarelli also stated that the bid-ask spread was starting to narrow, something that had not taken place over the past 12 months. “That’s an important ingredient for the market to begin to clear,” he said.

Despite what he called “significant risk in the mortgage market” owing to the vast amount of commercial real estate debt set to mature in the US over the next few years, Tognarelli said that risk in particular was “likely mispriced” – something that could be an area of opportunity for fund managers.

“We think that’s where the opportunity lies for our investors,” he said. “We also like Europe because we do think the fundamentals there may not be as bad as the markets are indicating.”