Roundtable Survey Illustrates Shallow Capital Availability

WASHINGTON, DC-The Real Estate Roundtable’s third-quarter 2010 Sentiment Index shows that the industry is still concerned about the pace of the recovery, the ongoing squeeze in the capital markets and unpredictable moves from Washington. 

It is somewhat of a letdown from the last survey, which pointed to a bottoming of prices and fundamentals. But any relief captured in that survey was apparently short-lived. People in the industry are fretting over job creation, unstable capital markets and what the upcoming mid-term elections might bring in terms of policy, Roundtable president and CEO Jeffrey DeBoer tells GlobeSt.com. 

The later, in particular, is a wild card. "Firms are still trying to digest what the health care bill means to their businesses and to their bottom lines," DeBoer says. "They are trying to understand what the financial regulatory reform will mean for credit availability in the secondary market. Then we have expiring tax cuts. Polls suggest the Republicans could make big gains and if they do, the industry is wondering what will that mean for policies."

The survey also captured respondents’ unease about the shallow recovery in real estate. For instance, respondents noted there was more capital availability now compared to last year. But it has also been noted that the depth of the credit markets in terms of both debt and equity has not been very great, DeBoer says. "Clearly there is more debt and equity available today compared to last year, but is it substantially more? Not really and that is a concern." Ditto for asset valuations, he continues. Those have stabilized and increased and there is a belief that they will be higher next year, but not substantially so. 

Bottom line, DeBoer says: "we saw in the first half of this year a bottoming and a turn around in some of the markets. Everyone was hopeful that it would be more of a V-shaped recovery or a U-shaped one. Now it is looking like it is an L-shaped one. We are in a flat trajectory period now." 

More than 110 executives from the commercial real estate sector participated in the latest third-quarter Sentiment Survey. For the first time, the survey’s current and future conditions indices merged, scoring an Overall Sentiment Index of 74--down from 76 in the previous quarter--suggesting a relatively positive trend and, as DeBoer says, a flat trajectory.

Other findings from the survey:

A total of 62% of the survey participants reported real estate market conditions today as "somewhat better" than a year ago (down from 65% in Q2); only 19% said conditions are "much better" (up from 17% last quarter).  

Looking forward, 59% of respondents predicted conditions one year from now will be "somewhat better" (down from 60% in Q2), whereas only 20% expect conditions one year from now to be "much better" (down from 28% last quarter). 

The overall Current Conditions index for Q3 2010 is 74--a stark contrast to a score of 36 for the same time period last year.

Fifty-seven percent of participating executives report asset values are "somewhat higher" than a year ago (up from 35% in Q2); 56% expect asset values will improve one year from now (the same expectation of 56 % was reported last quarter). 

Seventeen percent found asset values to be "much higher" than one year ago (up from 11% in Q2). Six percent said values will be "much higher" one year from now (up from 3% last quarter).

Forty-two percent of respondents said debt capital is "somewhat better" today than one year ago (versus 38% last quarter); 36% characterized debt availability as "much better" (compared to 27% in Q2). 

For equity, 54% of participants said availability is "somewhat better" than one year ago (versus 50% last quarter); 24% characterized debt availability today as "much better" than one year ago (compared to 26% in Q2).

Also, 62% of participating executives said debt capital will be "somewhat better" (versus 69% last quarter); 13% said debt availability will be "much better" (compared to 10% in Q2). For equity, 50% said availability will be "somewhat better" one year from now (versus 52% last quarter); 17% said availability will be "much better" one year from now (compared to 16% in Q2).