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NEW YORK CITY-Topping this year’s list of business risks faced by the real estate industry is the continued uncertainty and impact of the credit crunch, which the industry may feel more acutely than any other. The fallow period resulting from that uncertainty is an opportunity for companies to prepare for the next wave of growth. So says Ernst & Young in its annual business risk report for the industry, released earlier this week.

“There will be a fundamental shift back to traditional real estate underwriting principles, including comprehensive cash flow analysis and prudent levels of debt and equity in consummating real estatetransactions,” says Howard Roth, global and Americas real estate leader at E&Y, in a release. “This ‘back to basics’ movement will lead to the greater transparency necessary to restore confidence between buyers and sellers.”

The E&Y report, which was produced in conjunction with strategy consultancy Oxford Analytica, notes that the credit crunch is entirely new to the list of business risks as identified from interviews with leadership of multinational real estate companies. Perhaps reflecting the topsy-turvy state of the market and global economy, the top 10 list is itself much changed from last year’s.

Coming in second in E&Y’s top 10 2009 list is “global economic and market fluctuations,” which was ranked seventh in 2008. “Due to capital flows and business expansion, the real estate industry has become a truly global industry and, as such, is increasingly susceptible to global market fluctuations,” according to a release.

Third on the list of concerns is the impact of aging or inadequate infrastructure, up from sixth place in ’08. The concern is especially prevalent in the US, according to E&Y. New to the top 10 are the global war for talent and changing demographics, which last year ranked 14th and 13th, respectively.

“Inability to find and exploit non-traditional global opportunities,” in sixth place, was apparently seen as less of a concern this year than in ’08, when it ranked fourth overall. Appearing on the list for the first time this year was pricing uncertainty. “With few transactions taking place in the real estate market, valuations are a problem for existing owners, as well as buyers and sellers,” the release states.

Rounding out the top 10 were “the green revolution, sustainability and climate change,” up from ninth place in ’08; “economic vulnerability and regulatory risks in developing markets,” down from eighth place last year; and “volatile energy costs,” new to the list this year.

“Nobody knows when the real estate markets will bottom out,” writes Roth in the E&Y report. “However, many companies are proactively looking for ways to effectively manage risk and streamline operations so they can hit the ground running when markets begin to stabilize.”

Mark Costello, Americas leader of E&Y’s construction and real estate advisory services practice, says in a release that the industry as a whole is focused on “simplicity, transparency and quality deals. However, when things are going really well it tends to mask organizational inefficiencies. Companies which address those issues now and solidify their businesses will be in a much better position to address future risk threats.”

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