Recently, Ernst & Young released the results of its annualbusiness risk survey, our scorecard for how observers around thetop 10 risks facing businesses globally. As part of theoverall survey, Ernst & Young’s Global Real Estate IndustryCenter worked in collaboration with Oxford Analytica to poll realestate analysts, business executives and E&Y real estateprofessionals. Here’s what our survey revealed:

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1. Credit Shocks, Deleveraging,
Refinancing Uncertainty

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With more than $1.4 trillion in commercial debtmaturities expected between now and 2013, continuing decline inproperty values and stricter loan underwriting, it’s hardlysurprising that this is top-rated risk in business. What’s a littlemore surprising is that there seems to be almost universalagreement among our real estate commentators that this will remaina priority risk for the foreseeable future.

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2. Further Declining Economic &
Real Estate Fundamentals

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This is second half of the one-two punch. Will the economy rebound? If so, when and what impact will ithave on real estate demand and net operating income? It isconcerns such as these that placed this area of risk as thesecond-highest, ranked across all analysts and executivesinterviewed.

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3. Pricing Uncertainty

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The problem of pricing uncertainty ranked as the third-highestrisk of concern by the analysts and executives interviewed; andranked in the top five by all. Given significant declines inreal estate and cash flows, a dearth of transactions (and many ofthose transactions that do take place are either seller-financed orunder distress) it is no wonder that companies are rethinking theirapproaches to real estate valuation and risk management. Proactive performance monitoring, stress testing and obtaining athorough understanding of real estate exposure are once again topof mind.

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4. Regulatory and Taxation

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This risk didn’t appear on last year’s list and was a “write-incandidate” in 2010, which indicates it really is on the minds ofprofessionals in the real estate industry. Given the complex newregulatory environment, which varies by jurisdictions, companiesneed to track changing requirements to be able to reactquickly. Those who are able to address these shiftingrequirements first will be better able to attract investment. The broadening global nature of many real estate businesses mayalso explain why this risk is now on the radar.

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5. Aging Infrastructure

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It’s widely accepted that infrastructure in manycountries around the world is inadequate, and in desperate need ofrepair. That’s particularly true in the United States. Inaddition, many countries need significant investment ininfrastructure to accommodate their future population growth. Infact, there is a direct correlation between the quality and extentof a country’s infrastructure and its ability to grow both itspopulation and its economy. Commentators felt, and the E&Y teamagrees, that investments in infrastructure could open upsignificant opportunities for public and private partnerships,specifically to help public entities build and refinancegrowth.

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6. Global Talent War

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Another risk aimed solidly at a business’ abilityto grow is the quest for human capital. While Ernst &Young respondents and industry analysts put this risk below theirradar, real estate executives saw the possibility of a worldwidecompetition for talent as a middling risk among the Top 10,suggesting that expansion, and the means to achieve thatgoal, is very much on their minds. Clearly, real estatecompanies are among those businesses surveying the talent pool andpositioning for growth.

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7. Rising Interest Rates

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The possibility of rising interest rates was notincluded on last year’s risk list, evidence, if any were needed,that we have been part of one of the lowest interest-rateenvironments in recent global financial history. However, itwas suggested independently as deserving to be among a new Top10. While the US Federal Reserve and other national bankinginstitutions have moved aggressively to maintain low interest ratesin recent months, there is clearly an awareness in our industrythat this could be temporary and that rates may rise in the nearfuture.

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8. The Green Revolution

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While climate change and sustainability are growingconcerns within the real estate community, these risks ranked quitelow on everyone’s radar. The green revolution is wellunderway; what little construction is taking place is viewedpredominantly as sustainable in some form with many projects in theUS, for instance, certified under the US Green Building Council’sLEED standards. It is rare to find a new building that isn’tin some form certified as green. Similarly, many propertyowners and investors are retrofitting existing buildings to complywith green standards. Ultimately, the risk here may be whathappens to buildings that don’t possess some green accreditation orfeatures, especially in future transactions.

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9. Fraud, Corruption, Disputes

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As businesses diversify into new and unfamiliarmarkets, not surprisingly, the potential for fraud, corruption anddisputes increases. Ernst & Young participants felt there wasan additional reason to pay attention to this area, however. Thepartners we interviewed felt that this risk was particularlyimportant to consider given the difficult economic times, whichoften result in increased fraud.

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10. Inability to Find and Exploit
Global & Non-Traditional Opportunities

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As the global distribution of wealth and economic activityshifts, this area of potential risk continues to pose a significantstrategic challenge for the real estate industry. We see manycompanies globalizing their businesses through the use of jointventures with local partners and through consolidation of themarket to create larger, international platforms. In thecurrent financial climate, companies need to respond quickly toshifting wealth and have the confidence to move into new markets totake advantage of new investment prospects.

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This list of risks is not exhaustive, and realestate companies need to assess their own business goals andoperations to determine which risks may apply more directly tothem. However, this list is a good starting point for anycompany conducting an analysis of the risks likely to shape itsglobal business in the years to come.

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Howard Roth is the global real estateleader and a partner with Ernst & Young LLP’s real estatepractice. You may contact him at [email protected].The views expressed herein are those of the author and do notnecessarily reflect the views of Ernst & Young LLP orGlobeSt.com.

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Howard Roth

As the Global Real Estate Leader, Howard coordinates the firm's activities across a broad array of related services around the world. EY has the largest integrated real estate practice of any Big Four firm, with more than 7,500 professionals around the world providing audit, tax, transaction and advisory services to owners, builders, lenders and users of real estate. EY serves more than 4,000 real estate clients throughout the world. Howard brings more than three decades of experience in the real estate industry. He has worked extensively with major real estate private equity funds, domestic and offshore real estate investment trusts and large public homebuilders, as well as numerous construction and hospitality companies. His credentials include a BA in Accounting from Hofstra University. He is a member of the American Institute of Certified Public Accountants and New York, New Jersey and Connecticut Society of CPAs, has been a columnist for several major industry publications and is frequently a speaker at key real estate industry events.