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PERE 2009: US property values to fall another 10% – minimum

More than a third of industry professionals attending the annual PERE Forum: New York believe valuations will decline by another 10% or more. It comes as delegates are advised to underwrite deals with no rental growth assumptions for “years and years”.

Property valuations in the US are expected to fall by at least another 10 percent, according to delegates attending the annual PERE Forum: New York.

In a poll of the 100-strong audience on the first day of the event, 40 percent said they expected prices to decline an additional 10 percent or more, with 37 percent arguing valuations would fall by another 5 percent to 10 percent. Only 4 percent of delegates expected future valuation declines to be 5 percent or lower.

There is widespread uncertainty over valuations in the US, with many expecting declines in the near future. During a keynote panel, one speaker told the audience that there was no uncertainty over the direction for valuations, just “uncertainty as to how bad it gets”.

As such many fund managers needed to fundamentally change the way they underwrote deals, with a focus instead on debt yield, positions in capital stacks and assumptions for no rental growth.

“It will take years and years before we can underwrite rental growth,” the audience heard.

Andrew Wood, MGPA chief investment officer, added that any real estate recovery was dependent on employment growth, both in the US and UK. “Jobs are the key to the future of our industry and at the moment the employment growth outlook is a little bit bleak.”

Next year though is still anticipated to be the best opportunity for deals, according to another audience poll. Asked when the time to invest would be, 51 percent agreed 2010 would be the best year for investments, compared to 35 percent who said 2011 and 7 percent who thought 2012.