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WASHINGTON, DC-If the past nine months–or even previous 60 days–have struck you as difficult, brace yourself: the next year is going to be even worse, according to the Emerging Trends in Real Estate 2009 report, released Tuesday by the Urban Land Institute and PricewaterhouseCoopers LLP. Now in its 30th year, Emerging Trends is based upon interviews with 600 real estate experts, including investors, developers, property company representatives, lenders, brokers and consultants.

This year’s report minces few words about the state of the industry: it can be compared best to the wrenching 1991-1992 cycle and projects losses of 15% to 20% in real estate values from the mid-2007 peak. “It is still early days in all of this,” ULI senior resident fellow for real estate finance Stephen Blank, tells GlobeSt.com. “Transactions will become constrained because leverage will not be available and real estate needs leverage to operate.” The silver lining, he says–and report elaborates on–is the handful of investment opportunities that will arise from the chaos. “It is an unfortunate yin-yang forecast: somebody has to suffer for someone else to benefit,” he says. Blank, along with the principal author, Jonathan Miller, an ULI consultant, held a teleconference discussing the finding on Tuesday. Blank spoke with GlobeSt.com after the call.

Opportunities for the cash rich–and increasingly, overseas buyers that can leverage a weak dollar–include discounted loans; recapitalization finance for distressed borrowers such as construction loans/bridge loans, mezzanine positions and equity stakes in properties; publicly-held REITs, which are expected to lead the market’s recovery; multifamily investments, residential building lots–but be prepared to hold them; distressed condos near transit, and global gateway cities. In terms of investment, Seattle and San Francisco take the top two rankings of such cities, beating out New York City, which has ranked at the top. New York City was even edged out by Washington, DC, which took third place.

Another opportunity for developers and borrowers–as well as owners of single-family homes–lies in lenders’ increasing need for liquidity, Blank says. Borrowers with good credit and assets that have retained their value may be able to purchase their mortgage from their lender at a discount if the lender has a need to move the asset off of its balance sheet. Blank gives a hypothetical example for a single family home owner, but says it can be applied to a commercial development as well.

“Let’s assume you have a property that you paid $100,000 for and it has retained its value,” he says. “There is a $75,000 mortgage on it and $25,000 in equity. A borrower could offer to buy that mortgage for 80 cents on the dollar.” It will be a difficult scenario to execute, he says–particularly finding a financial institution willing to underwrite the new $60,000 mortgage. “But that is how people will make money in the coming year–by successfully executing in a difficult environment.”

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