Real estate chief executives have warned the US market is deteriorating in terms of accessing capital and debt, with almost nine out of 10 senior professionals saying the situation was now “much worse” than one year ago.
According to the US Real Estate Roundtable’s latest quarterly report, 95 percent of senior real estate investors and operators felt that access to debt financing had reduced over the past 12 months, with 74 percent stating that availability of equity capital had also declined over the same period.
In a general assessment of the state of the market in the US, 41 percent of respondents said the outlook for the commercial real estate market was now “much worse” than last year – compared to just 31 percent in April.
Jeffery DeBoer, president and chief executive of the Roundtable, the US trade body representing chief executives in the commercial real estate industry, said in a conference call with journalists that the industry was entering “unchartered territory.”
Previous downturns had been a result of oversupply, he said, however the failure of the credit markets was now spreading from US residential markets and the financial industry into commercial real estate. “I think it’s only natural that we started to see people who are [holding] large real estate assets suffering the same fate [as other] economic participants.”
Even with strong fundamentals such as balanced office vacancy rates, steady retail returns and low delinquency rates for real estate-backed loans, DeBoer said confidence in the commercial market had fallen since the Roundtable’s last sentiment survey in April.
The number of executives who expected market conditions to improve over the coming year fell 10 percent from 63 percent to 53 percent between April and July, when the latest report was conducted.
The survey, which questioned 110 executives, including Apollo Real Estate Advisor co-founder Lee Neibart; Jay Mantz, global co-head of Morgan Stanley Investment Management, responsible for Morgan Stanley Real Estate, and Robert Larson, chairman and managing principal of Lazard Real Estate Partners, focused on income-producing real estate including office buildings, shopping malls, warehouses, hotels and apartment buildings.
DeBoer urged policymakers in Washington to take notice of the survey adding: “The footprint that this industry leaves in the general economy is quite dramatic, and how decision makers in this key part of the economy feel is important. These people feel that income-producing real estate economy is in trouble, not because of the fundamental operating basis, but because the overall financial markets are dysfunctional and they don’t expect them to improve substantially over the next year.”