This year's report minces few words about the state of theindustry: it can be compared best to the wrenching 1991-1992 cycleand projects losses of 15% to 20% in real estate values from themid-2007 peak. "It is still early days in all of this," ULI seniorresident fellow for real estate finance Stephen Blank, tellsGlobeSt.com. "Transactions will become constrained because leveragewill not be available and real estate needs leverage to operate."The silver lining, he says--and report elaborates on--is thehandful of investment opportunities that will arise from the chaos."It is an unfortunate yin-yang forecast: somebody has to suffer forsomeone else to benefit," he says. Blank, along with the principalauthor, Jonathan Miller, an ULI consultant, held a teleconferencediscussing the finding on Tuesday. Blank spoke with GlobeSt.comafter the call.

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Opportunities for the cash rich--and increasingly, overseasbuyers that can leverage a weak dollar--include discounted loans;recapitalization finance for distressed borrowers such asconstruction loans/bridge loans, mezzanine positions and equitystakes in properties; publicly-held REITs, which are expected tolead the market's recovery; multifamily investments, residentialbuilding lots--but be prepared to hold them; distressed condos neartransit, and global gateway cities. In terms of investment, Seattleand San Francisco take the top two rankings of such cities, beatingout New York City, which has ranked at the top. New York City waseven edged out by Washington, DC, which took third place.

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Another opportunity for developers and borrowers--as well asowners of single-family homes--lies in lenders' increasing need forliquidity, Blank says. Borrowers with good credit and assets thathave retained their value may be able to purchase their mortgagefrom their lender at a discount if the lender has a need to movethe asset off of its balance sheet. Blank gives a hypotheticalexample for a single family home owner, but says it can be appliedto a commercial development as well.

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"Let's assume you have a property that you paid $100,000 for andit has retained its value," he says. "There is a $75,000 mortgageon it and $25,000 in equity. A borrower could offer to buy thatmortgage for 80 cents on the dollar." It will be a difficultscenario to execute, he says--particularly finding a financialinstitution willing to underwrite the new $60,000 mortgage. "Butthat is how people will make money in the coming year--bysuccessfully executing in a difficult environment."

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