It was quite unthinkable at the beginning of 2008 that a financial crisis of historic proportions would be a reality by the year’s end. But now investors are beginning to understand the severity of the situation they’re in, and they’re preparing for the realities ahead.
Although the turbulence in the financial markets has contributed to a sharp decline in real estate transactions, many commentators are predicting future opportunities to acquire properties at discounted prices. No one can predict with certainty when the current downswing will end, or when and how quickly values will once again begin to appreciate. While it may seem premature to talk about an upturn, when the time comes, buyers seeking to take advantage of the opportunities should learn from the past and guard against sellers who may be tempted to back out of purchase and sale agreements (PSA) in order to take advantage of appreciating values.
If 2008 had ended with September, it would have been regarded a pretty good year for REITs. In the first nine months of the year, REIT performance was slightly positive.
The Institutional Real Estate Universe tracked the launch of 145 investment funds in the past 12 months, including 11 infrastructure funds — a new fund category for the Universe — compared with 87 new product offerings in 2007. The real estate and infrastructure
Capital investment to real estate saw its first decline in several years, according to Institutional Real Estate, Inc.’s database of publicly announced commitments. Institutional investors committed $15.5 billion to real estate in 2008, a 12 percent decline from the $17.6 billion tracked during 2007. IREI tracked commitments worth $13.9 billion in 2006 and $9.4 billion in 2005.
After a banner year in 2007 that recorded 47 mergers and acquisitions involving real estate–related firms, M&A activity in 2008 has slowed to a snail’s pace. A weak economy, financial market turmoil, uncertainty of a new presidential administration and a severe credit crunch have combined to suppress deals this year. Only 13 M&A transactions involving real estate–related firms were completed in 2008, a significant reduction from the 47 deals tracked in 2007.