Sunday, August 23, 2009

Prudential Analysis of U.S. Market Illustrates Problems, Opportunities Facing Investors

As the economic spiral facing the United States markets appears to be slowing -- some suggest it is even bottoming out -- opportunities exist for both investors and owners alike, depending on the types of properties they either are acquiring or currently own.

I have written in these pages previously that multifamily is the only sector that seems to have some stability. Most of the others -- retail, industrial, office -- are hurting in different ways. Each of these situations provide significant opportunities for investors, who will be able to pick up somewhat discounted properties as pressure builds on owners to refinance (if they can) or deal with vacancy rates that cannot be sustained because of the cost of money when they acquired the properties.

As such, owners are selling, or will be selling, because of pressure from lenders or a wish not to deal with vacancies and tenants who are having a tougher time in their own industries.

With multifamily there also are some properties that will be coming to market around the nation due to lender standards (driven by the U.S. Treasury Department) demanding commercial borrowers to add additional capital or have their notes called. Though I am a fan of leveraging investments, those owners who are over-leveraged will find that this market and new government requirements being imposed on banks may be their un-doing.

Prudential Real Estate Investment, the equity management arm of our organization, has a new report out discussing the outlook for the market in the United States. In the quarterly report, analysts pretty much discuss much of what I have outlined in previous months -- only with a bit more detailed analysis. We are not yet seeing a lot of distressed properties come on the market, but we will. It will be an investor's dream scenario.

Interestingly, the multifamily market sector, while experiencing some hiccups, is relatively stable, depending on where you are in the nation. Some markets are stronger than others, but, in fact, multifamily is going to remain strong for another reason -- not just because people are losing their homes and need a place to live.

A new story published by Multifamily Executive magazine notes that with so little new multifamily product being built anywhere in the United States right now, pressure is on these properties and rents are stable and will soon be rising, if they aren't already. And all these factors are going to create a shortage of a new kind -- which creates opportunities for investors.

Low-income housing.

Whether it is multifamily, or single family, pretty much all indicators are pointing to as long as a decade of shortage of low-income housing. An opportunity for individual and corporate investors, in my opinion, as we will likely see municipally-funded low-income housing in decline. Cities and other government agencies are bankrupt, stretched beyond their limits. It will be more and more difficult for public funds to be earmarked for housing. That is, unless the Obama administration decides to allocate more funds from stimulus packages or other programs toward low-income housing.

I will write more on this in the coming days. I am still digesting the Multifamily Executive magazine piece, and will share more as I have thoughts on it.

If you have time, please take a look at the Prudential quarterly review of commercial real estate trends. It is a fairly succinct snapshot of the pitfalls -- and opportunities -- facing the investment real estate community.

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