C&J Valuation Advisors

We'll be at BVR's Fair Value Summit next week in NYC, Feb. 1-2.

http://www.bvresources.com/defaulttextonly.asp?f=FairValueSummit3

2009 Commercial Real Estate Strategies

The Urban Land Institute has recently published their Emerging Trends in Real Estate 2009 report.  I like this source as a reliable pulse on the marketplace due to the fact that it is based upon interviews and consensus forecasts with over 700 real estate professionals and experts.

Not surprisingly, the surveyed outlook is not positive for 2009.  In a nutshell, the consensus suggestion indicates declines in property values on average of 15%-20% from 2007 peaks, with a slow recovery beginning in 2010 led by REIT stock portfolios. 

However, the true value from the ULI report is in their insights to strategies for surviving and even taking advantage of the down cycle.  Suggestions are as follows:

For Investors:

1)       Be patient and husband cash:  Those that hold the cash will hold the power when market opportunities arise.

2)      Buy discounted loans:  There will be significant opportunities to purchase collateralized loan portfolios at deep discounts as banks feel pressure to heal their balance sheets.

3)      Recap distressed borrowers:  Overleveraged owners will look for lifelines from investors.  Opportunities will arise for mezzanine structures with superior structure/returns.

4)      Hold core properties in core markets:  There will be a flight to quality properties, with a focus on cash flows and tenant relations.  In particular, investors will gravitate to 24 hour and coastal cities such as D.C., San Francisco, New York, L.A., Boston and Seattle.

5)      Buy public REITS:  These stocks have taken a major licking.  Many larger companies are well capitalized with manageable debt loads allowing them to better navigate the turbulence and position themselves for the recovery.

6)      Staff up Asset Managers, Leasing Pros, and Workout Specialists:  Work the portfolio as hard as possible to limit losses.

For Developers:

1)      Re-orient to mixed use and infill:  Suburban McMansions are in decline.

2)      Plan more transit oriented development:  Increasingly people want to drive less.  Projects near public transportation should do well.

3)      Go green:  Take advantage of government subsidies and invest in long term energy savings.

Property Sector Specific ULI Consensus Recommendations:

1)       BUY:  Distressed condos and building lots

2)       BUY/HOLD:  Multifamily and Industrial

3)       HOLD:  Office and Hospitality

4)       SELL:  Retail

At C&J Valuation Advisors, we understand the market turbulence impacting current owners of commercial real estate.  We work closely with owners, investors, lenders, and corporate users of real estate to develop and execute sophisticated strategies aimed at improving cash flows, unlocking value, or minimizing risk.  For more information, please see our web site at www.cj-va.com

                                                                                    Christopher C. Chotard, CCIM, AVA