The US real estate market is expected to hit bottom in 2010 amid warnings the current crisis will “eclipse” the savings and loan debacle of the 1990s.
After more than a year of “suspended animation”, 2010 will mark one of the worst times for investors to sell properties in more than 30 years – and the start of a buying “opportunity of a lifetime”, the latest emerging trends report from the Urban Land Institute and PricewaterhouseCoopers predicts.
The annual report went on to predict that 2010 would be an “unavoidable bloodbath” for overleveraged borrowers, investors and lenders, who face maturing loans and severely constricted debt markets. “The dramatic fallout from the unprecedented early-2000s credit binge, 2010 and 2011 could be the “opportunity of a lifetime”, a limited window to cash in on one of the best acquisition environments ever.”
However, despite the opportunities for cash-rich investors, the report warned any real estate recovery would not gain traction until at least late 2011 – and possibly into 2012. “In the meantime, rents and occupancies will continue to fall well into 2010, savaging the prospects of weakened owners struggling with financing issues.”
More than 900 real estate professionals were interviewed for the Emerging Trends in Real Estate 2010 report by ULI and PwC. One respondent told the report: “Getting through 2010 will be the test.”
The report adds that there will be an “inevitable shakeout” of the industry in 2010, as the process of “capital destruction begins in earnest, culminating in bloodletting-ugly headlines about big-name developers flaming out, rising defaults and delinquencies, a spike in foreclosures and recognition of the magnitude of losses everyone has been well conditioned to expect.”
Once that pattern of “failure” gains momentum, the report continued, “hovering vulture investors will descend and property transaction markets can reformulate, providing pricing visibility and leading to greater liquidity”.
The US market to watch was Washington DC for commercial and multifamily investment, development and for-sale homebuilding, owing to the expansion of the federal government. Gateway cities, such as San Francisco, Boston and New York were also expected to weather the turmoil better and recover more quickly than most interior locations in the US.
One area though the report warned would continue to feel the pain was in development. 2010 ( and possibly into 2011 and 2012) would be a year for developers to “close up shop, hit the links, convert operations to asset and property management or become a workout specialist like everyone else”.