Current RE market in US worse than during S&L crisis(3)

Six out of 10 commercial real estate executives believe the credit crisis has now had a greater impact on the real estate industry than during the crisis of the late 1980s, early 1990s. Just 10 percent are ‘bullish’ on the opportunities created by the distress, most attracted to multifamily.

A majority of commercial real estate professionals believe the credit crisis has now eclipsed the savings and loans debacle as the event with the single-greatest impact on the US property industry in the past 20 years.

A survey by law firm DLA Piper warns that six out of 10 executives viewed market conditions in the US as worse than during the late 1980s and early 1990s, with 80 percent believing the market has yet to reach the bottom.

The firm’s “State of the Market” questionnaire, which surveyed 424 professionals, reveals that 90 percent of respondents are bearish on their outlook for the US commercial real estate market over the next year – compared to just 68 percent one year ago. Of the 10 percent that were bullish on opportunities for investment in the US, around half said it was precisely because of the credit crunch that they remain optimistic.

Almost 85 percent of the executives surveyed said the real estate market would stabilize in 2010 or in 2011, with multifamily the most attractive sector over the coming 12 months. Hotel and retail investment opportunities have fallen out of favor with investors, according to the report. Just five and six percent of respondents respectively believed hotel and retail would be the most attractive sectors in the next year.

Outside of the US, the emerging markets of China and India continued to rank as the most attractive destinations for investments globally, similar to DLA’s report in 2007.

The survey was originally issued prior to the bankruptcy of Lehman Brothers, the sale of Merrill Lynch and the US government bailout of AIG. In that survey, respondents ranked the savings and loans crisis as having the largest impact on the state of the real estate market in the US over the past 20 years.

However in a follow-up survey issued following last week’s events, 59.7 percent of respondents put the current credit crisis as having a larger impact, with 80 percent saying there was, as yet, no “light at the end of the credit crisis tunnel.”

As part of the report, real estate professionals offered their thoughts on the outlook for the market over the coming year. One respondent said rising cap rates and falling interest rates had contributed to the US’ booming real estate market over the past decade, but investors were now facing “a reversal of these conditions.” Another executive added that the “wait and see attitude” of all participants in the real estate market, from institutional investors to deal guys, were “killing activity.”