Faye Beverett, a principal at Bard Consulting LLC, said pension funds will take back discretionary authority, resulting in a slower purchasing process. "In the next year, we'll see pension funds use money allocated to real estate to rescue existing assets whereas new acquisitions will focus on core product," she said.

Rockwood's Gray echoed this sentiment. "Going forward, Rockwood will look at deals through its core fund that will provide at least a 9% to 11% levered return over 10 to 15 years." In 2010, people will bid for better assets and accept a relatively low yield due to low yields on alternative investments, he said. "You would rather get a 6% yield on a building because you are only getting a 25 basis points return on your money market account."

While there is plenty of capital available for public companies, money is scarce for private developers. So said Mark Myers, an EVP at Wells Fargo. "We want to lend, but there is very little demand for new originations."

So what will it take for banks to begin issuing construction loans again? Myers said that it will be "Improved market fundamentals and recourse." He added that "Loan originators will have to have significant capital at risk" in order for the CMBS market to come back."

Andrew Friedman, managing director of the capital transactions group at Shorenstein Properties offered the real estate operator's perspective on the current economic climate. "In the best primary markets, we're already seeing the highest quality assets trade in the high 5% to low 7% cap range." While there is capital available from a variety of sources—foreign, family, public and private—"the problem is property cash flow and poor fundamentals," Friedman said.

Will development return in 2010? "There will be some development this year," Bard's Beverett speculated, "but it will be user based—in the health care or government sectors."

Gray added, "We'll see some money for residential as well as some for retail to replace some of the existing antiquated retail out there." He noted that "There is plenty of liquidity; everything will trade at a price."

Instant Insights /

Panel Sees Shards of Light, 7% Cap Rates

Related Stories

Recommended For You