DLA Piper: Market Has Reached Bottom

In advance of its Global Real Estate Summit 2010, legal firm DLA Piper has released its State of the Market Survey, which asserts that the market has indeed hit that much-vaunted bottom.

May 3, 2010
By Allison Landa, News Editor

In advance of its Global Real Estate Summit 2010, legal firm DLA Piper has released its State of the Market Survey, which asserts that the market has indeed hit that much-vaunted bottom.

“I guess there’s a sense of optimism there, right?” DLA Piper U.S. Real Estate Practice Chair Jay Epstien noted to CPE when discussing the fact that 60 percent of survey respondents believe the markets have already reached or will reach bottom this year. “I think it’s a sort of cautious optimism that we’re truly in a better place than we were 12 months ago. Looking forward, people are thinking that the markets are at a place where they’re poised to turn up and see more activity.”

While the bears are down and the bulls up, Epstien asserts that irrational exuberance is not at hand and that another bubble is not in formation.

“I think it’s more a view toward the (fact that) the industry has been beaten up pretty bad over the last 12-24 months, that the general economy has stabilized or is even better in some peoples’ views,” he said. “We’re back from the brink … do I think it’s an exuberance? No, personally, I don’t think that at all. I think this is going to be a slow recovery until we get back to some sense of normalcy. Surely we’re not going back to the way we were in 2007 and early 2008, but at some point the markets will be more stable and vibrant.”

Two out of three survey respondents said that the federal government’s stimulus funds had done enough to stabilize the real estate marketplace. Epstien told CPE that this means the industry got the benefit of the federal effort.

“I think if you look back now with some perspective, the Troubled Asset Relief Program funds were critically important to stabilizing the financial markets,” he said. “We now sit today at a place where the job losses have stopped … but we have a long way to climb out of the very deep hole that we put ourselves in last year.”

Survey respondents cited workouts and loan extensions as two of the most prominent strategies for owners and lenders to deal with refinancing. According to Epstien, that equates to a very large representative sample’s belief that kicking the can down the road will continue to be a major strategy.

“Until some regulatory impact comes into the market, regulatory direction that the banks and financial institutions have to take these losses and deal with them, what you’re going to see is that it’s going to keep getting pushed down, whether it’s pretend-and-extend or otherwise,” he said. “The banks are saying absent some external force telling them otherwise, why not extend these loans, particularly when some are cash-flowing.”

While it was not much of a surprise that the multifamily sector ranked as the most attractive opportunity in the survey, it was a surprise that hotels ranked second. Epstien said that multifamily has remained a relatively consistent performer because financing had never dried up due to the presence of the Fannie Mae and Freddie Mac programs.

In terms of hotels, he said, they were a leading indicator of the downturn since tourism slowed, jobs went down the drain and nobody was taking a vacation.

“(Now) people are feeling more comfortable, and business travel resumes,” he said. “RevPAR is picking up … and people are seeing lots of opportunities in the hotel segment for the industry.”

CPE will be providing coverage of the Global Real Estate Summit beginning tomorrow morning.