In particular, cap rates are forecast to range from 5.5% to 6%for a stabilized, class A office property. By comparison, cap rateswere estimated between 6.5% and 7.5% nine months ago, CBREsays.

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Hand in hand with cap rate compression will be a gradual declinein vacancy and uptick in asking rents. Already, the report says,these factors have begun to settle down compared to the sharpdeclines experienced in '09. "As all of the market fundamentalsstabilize, it will make investors more confident," Sean White,senior research analyst at CBRE and lead author on the report,tells GlobeSt.com.

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Financing is slowly opening up, albeit on more stringent termsthan before. Investors this year accept that the wide latitudelenders granted three years ago is gone, and are prepared to putmore equity into the deal, says White. Even so, the leverage ratiois on the rise, depending on the asset; it can go as high as 60%and may tick up further, although it's not likely to approach the80% or 90% levels seen at the current cycle's peak.

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The report notes that of the three large refinancings secured bySL Green Realty Corp. in the second half of last year—1515Broadway, 420 Lexington Ave. and 100 Park Ave.—two wereaccomplished with offshore lenders and with syndication. We'll seemore of both trends, the report states.

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Stiffer underwriting criteria are standard operating procedurethis year. "In 2007, a property with vacancy may have beendesirable since rents had been rising significantly," according tothe report. Now, lenders favor stabilized assets. "Cash flow is themain thing," says White.

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This year will represent an improvement on '09 in terms oftransaction volume; how much of an improvement is difficult topredict. But the still-low volume is having a positive effect onpricing. "While there is hesitancy to sell into this stage of themarket recovery, the reality is that there are few quality assetson the market right now and there is heightened competition forthose assets," Pamela Murphy, SVP of research at CBRE, tellsGlobeSt.com. "Increased competition is holding prices to levelshigher than might have been expected."

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CBRE's report predicts that there won't be a flood of distressedassets coming to market. Instead, we'll see a mix of loanextensions, loan workouts, loan sales and forced sales. Yet Whitesays acute distress is not the only reason owners will put assetsup for sale.

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"There's two markets out there," he says. "There are people whohave to sell because of debt issues and there are people who don'thave to sell, but for one reason or another, they find that nowmight be a good time for them. There will be definitely bedistressed sales; we're not trying to minimize that. But you'regoing to see a little more of the other types of seller now thatthe market has stabilized."

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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.