RISMEDIA, March 21, 2011—Adversity often creates opportunity in business and nowhere is this more evident today than in the commercial real estate sector, according to Rick Sinkuler, markets leader in Ernst & Young’s Global Real Estate practice. Speaking at national law firm Akerman Senterfitt’s National Real Estate Summit recently, Sinkuler painted a picture of a global real estate market that has transformed dramatically in just the last twelve months.
Sinkuler began his presentation by looking back at how the industry was viewed entering 2010. Just one year ago the talk was characterized by massive uncertainly and anticipation of a host of distressed real estate transactions coming to market. The year saw transactions taking place at cap rates below 5%, CMBS credit spreads of 150 basis points, LTVs in the 70% range, REITs around the world posting positive returns and double digit increases in just about every major stock index. In reality, 2010 ended up being the best year that never was, Sinkuler said.
In 2010, though still far below their peak activity in 2007, global property transactions surged 44% from 2009 levels indicating both a return of liquidity and a resurgent appetite among investors in the commercial real estate sector. While positive, Sinkuler cautioned the audience to remember that not every market was affected in the same way, nor will recover in the same fashion. He told the audience that while the global numbers are encouraging, he had to underscore the imperative for investors to do their homework if they intend to invest in real estate outside their home market whether it be in the U.S. or abroad. Sinkuler cautioned them to fully understand the assets, the markets in which those assets reside, the regulatory enforcement systems, tax regimes and cultures, before putting investment dollars on the line.
Global investors flocked to prime properties in the most desirable markets in 2010. However, investors are starting to broaden their horizons in search of higher yields this year, Sinkuler added. As confidence spreads among the investor universe, Sinkuler said he expects there to be more opportunity, especially in tertiary markets around the globe. Approximately 50% of the property transactions recorded in 2010 were in Asia where the lion’s share of global population and economic growth is expected in the next 20 years.
All in all, Sinkuler expects 2011 to be very much a rebuilding year in commercial real estate both here in the U.S. and in many global markets. That’s especially true—figuratively and literally—in regions such as Asia where many of the buildings required to house the region’s burgeoning population have not yet been designed, let alone built.
He noted that in many markets, lenders have returned to offer debt financing for purchases, the commercial mortgage backed securities market has revived and, on the equity investment side, private equity funds have resurfaced, several with new funds and even traditionally very conservative investors such as pension funds have begun to put their toe back into the waters of commercial real estate.
Sinkuler cautioned that ongoing recovery in real estate is strongly linked to the broader global economy and that the pace of recovery will be dependent on a number of factors including economic growth, job creation, consumer confidence and even housing construction. One dampening factor though, is that the residential real estate sector is still weak in the U.S. and in some other developed economies and this, combined with growing uncertainty in the Middle East, rising oil and gas prices and even the lack of overall fiscal responsibility in many governments at home and abroad, may hold back the pace of recovery in the commercial sector. Overall, though, Sinkuler said that the global real estate market is headed in the right direction and the opportunistic and optimistic nature of the typical commercial real estate investor, who operates in a world where only risk gets a reward, is hard to deny.
