Investors in Commercial Real Estate Expect a Better Market in 2011- By: John Cutts
A report published by the Urban Land Institute, in collaboration with PriceWaterhouseCoopers, revealed that most U.S. investors in commercial real estate are expecting 2011 to be a better year in terms of commercial property sales. According to the study, lenders will foreclose on more properties next year in an effort to meet higher demands for distressed real estate.
The study also revealed that the poor condition of the country's economy will push buyers toward high quality commercial properties with rents that can cover mortgages. The report based its findings on a survey participated by 875 real property owners, advisors, developers, lenders, real estate companies and investors.
According to most respondents, the focus of investment will be on properties that can be supported by rents. They also revealed that most investors do not expect property flipping to bring in a lot of money, with buyers focusing mainly on properties where they can manage assets. In addition, respondents believe that borrowers with the most capital, like REITs, will be some of the most ardent buyers of commercial real estate.
Another issue touched upon by the study was the expected maturity of around $1.4 trillion worth of mortgages for commercial properties between 2010 and 2014, which include apartments, office buildings, hotels, shopping centers and malls. This will mean that borrowers will have to look for new mortgages and investors are the ones expected to provide these loans.
Aside from investors, returns from properties and borrowers' own money will be the source of purchase money. Real estate experts have stated that a lot of finances have been used to purchase distressed real estate; however, lenders are thwarting these efforts and are opting to extend the maturity of loans instead of foreclosing on properties.
Respondents at the survey have also stated that they expect lenders to issue more mortgage loans and foreclose on more commercial real estate between 2011 and 2012. The sale of these foreclosed properties is expected to produce lower property values that can be 30 to 50% lower than the peak prices of 2007. In addition, capitalization rates for the first few years of ownership are expected to decline by the last quarter of 2011.
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John Cutts has been educated in the finer points of the foreclosure market over 5 years.