"Investors feel that they've turned the corner and they can seethe light at the end of the tunnel—it's just that the tunnel isvery long," says Smith, director of PwC's real estate advisorypractice and editor of the survey. "It'll take a while to reachthat light, but at least they can see it." The pessimistic tone ofvoice that Smith heard when conducting interviews for the fourthquarter 2009 survey is "gone" now.

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As an illustration of investors' greater optimism—as well as oneof the reasons for that positive attitude—respondents in 19 of the30 markets say they expect cap rates to hold steady for the nextsix months. In the survey for Q4 '09, just two markets offered sucha forecast; previously, the cap rates had been on the rise.

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Smith says investors are realizing that the economy has beenshowing signs of improvement. "You can see that in some of therecent jobs numbers and retail sales figures," she says. "Some ofthe residential markets have really bottomed in terms of pricedeclines and value declines. All of that is finally tricklingthrough the commercial real estate investors."

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She adds that compared to prior quarters during the downturn,Smith says, "there's more of a sense that buyers, sellers andinvestors are in agreement on pricing." That bodes well for animprovement in selling activity during 2010, even though surveyrespondents still expect it to be a relatively slow year.

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"Investors feel that right now is a great time to buy," Smithsays. Even if property values decline a little more over the nextyear due to weak fundamentals, "the declines will not be as steepas they were at the start of the correction." And for surveyrespondents, there's more of a sense that "if they can't meet theirupcoming debt maturities, maybe an alternative for them is to sell,take their loss and move on, sensing that the bottom is near. Evenif they have a little bit of a loss, taking the equity they haveand purchasing an asset now at a comparatively low price presents agreat opportunity for them."

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Although competition for quality deals is "pretty tough," as onesurvey participant put it, PwC says most participants believe thatunderwriting assumptions are "appropriately cautious" and "pricingissues between buyers and sellers are easing." According to PwC'sQ1 report accompanying the survey, "Market pricing that is betterunderstood among investors and lenders will allow the creditmarkets to continue to thaw and deal with the rising level of CMBSdelinquencies and mortgage defaults."

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These looming delinquencies and defaults, survey respondentsbelieve, will spur an increasing number of forced sales over thenext two years, even if the expected glut of underwater propertieshas yet to reach the marketplace. One survey respondent put it thisway: "A day of reckoning is likely coming for many industryplayers."

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.