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Deals slow to trickle, investors wait for opportunities

As private equity real estate fund managers and institutional investors meet in Chicago for the fall Pension Real Estate Association conference, many say waiting is the best strategy.

Real estate investors are taking a 'wait and see' approach to the current credit crisis despite fund managers having capital sat on the sidelines, according to speakers and delegates at the annual Pension Real Estate Association conference in Chicago.

With the credit markets frozen and the financial industry in turmoil following the collapse and sale of Lehman Brothers and Merrill Lynch, the bailout of AIG, Fannie Mae and Freddie Mac and the capital injections into Goldman Sachs, Morgan Stanley and General Electric, industry veterans admit people are “nervous” about being the first to take advantage of perceived distressed opportunities.

“People are so nervous about being first and using whatever cash they have,” said Jeffrey Horowitz, managing director and head of global real estate banking at Merrill Lynch. “[Investors] don't want to look stupid. There is a lack of confidence.”

Real estate deal volumes are down by up to 80 percent compared to the same period in 2007, according to people familiar with the matter, primarily owing to the lack of liquidity, but also due to uncertainty over pricing.

Mike Kirby, director of research at real estate consulting firm, Green Street Advisors, told delegates real estate values were expected to decline by around 15 to 30 percent, particularly in the public sphere. “If General Electric and Goldman Sachs are stressed it would be naive to think real estate won't go through the same thing,” he said.

Ed Walter, chief executive officer of the real estate investment trust, Host Hotels and Resorts, summed up the sentiment of most delegates in Chicago, adding: “It's realistic that with the outlook that most have for the next year that waiting is better.”