Industry Barbell To Flatten Over Decade

CHICAGO-The commercial real estate market barbell, with a good amount of capital chasing either trophy or traumatized properties (but not much activity in the middle), will level off, according to panelists at the Real Share Chicago conference held this morning at the Renaissance Chicago Hotel. However, as opposed to the quick fire sale, followed by recovery, in the early 1990s, the relaxed rules for banks and a wide bid-ask spread will push the barbell flat only over a prolonged period, likely 10 years, the speakers said.

Most of the presenters, which included titans of local property brokerage, development and financing, said they are positive that rock bottom will be reached this year and an upswing will start in mid-2011. “I’m optimistic,” said Jim Dieter, EVP of US industrial brokerage for Cushman & Wakefield. “The fundamentals are strong. Manufacturing has increased, housing is up, the car industry is on fire. We will persevere.”

That outlook was tempered by observations about two fundamentals that must be met, said the panelists. More jobs must be created – that is, more jobs than just matching population growth – a trend that no one can yet predict. Also, surprisingly, many in the industry are relieved by current global instability, as it is helping to keep interest rates low. “An increase in rates could destroy the euphoria we are feeling right now,” said Earl Webb, president of US operations for Avison Young.

Capital that was held for all of 2009 has started to flow, to almost a flood during the second quarter, agreed most of the speakers. Good properties are getting offers, though deals are tougher, requiring much more creative thinking than in years past. Brian McAuliffe, managing director and head of acquisitions for Rreef, said it’s the most diverse capital field he’s seen in 25 years. “It’s very competitive. Historically, you see peaks, with institutional capital leading for a while, then public, etc. There’s every kind of capital out there now.”

The next step is to let the market work itself out, without further government intervention, agreed many of the speakers. “We just have to tell Pres. Obama that they have to get with it. You’re killing us, here,” said Lynn Reich, president of the Society of Industrial & Office Realtors, to a round of hearty applause from the roughly 300 attendees.