The subprime mortgage crisis has sent the U.S. residential market into a tailspin, and subsequent contagion has caused commercial real estate capital markets and investors around the globe to pause to reassess and reprice risk. However, opportunity funds, pension funds and foreign investors have plenty of capital to invest. For those investors who can identify the opportunities and act swiftly, the current market offers attractive values, especially on the debt side and in residential land.
From the Current Issue
Between 1947 and 1962, 14 million new single-family homes were built in the United States. More than 10 million of these homes were built on farmland and in the smaller communities that fanned out from the existing urban cores of America’s cities. These suburban developments offered competitively priced housing built on land that absorbed less than 20 percent of total development costs.
Sentiment in the European office market had, until the credit crunch hit, been relatively upbeat, as buoyant business confidence coupled with improving employment prospects added weight to office sector performance. Nevertheless, more expensive borrowing and a heightened uncertainty in global finance and credit markets have left their mark on real estate since the late summer of 2007.
When the Florida State Board of Administration invested about $2 billion in structured investment vehicles (SIVs) and other debt instruments on behalf of its local government investment pool, the board, which also oversees the $138 billion Florida Retirement System Pension Plan, thought it was investing in a relatively safe account, one that happened to pay a little more interest than a bank would.
With the capital markets and commercial real estate investment market clearly in a period of transition, Larry Gray, editor of The Institutional Real Estate Letter, turned to Kenneth Riggs Jr., CEO of Real Estate Research Corp., to shed some light on current market trends and share his outlook for 2008.