A Path Through the Haze

It’s been quite a year. What started with hope descended into fear of a double-dip recession, then moved into an economic limbo where no one knows what to expect.

By Suzann Silverman, Editor-in-Chief

It’s been quite a year. What started with hope descended into fear of a double-dip recession, then moved into an economic limbo where no one knows what to expect. Though the Dow Jones Industrial Average has mostly stayed above 12,000 lately, the stock market has been up and down so many times it’s tough to count. Recession continues to threaten Europe, with the relentless march of financial crisis entering Greece, then the larger euro zone and now, it seems, Italy, too. Speculation continues to vary as to how much the crisis will be felt on this side of the Atlantic, although Occupy Wall Street, and the protests it gave rise to, are indicators that the public has lost confidence in the government’s ability to protect our economy.

As for the real estate market, investors who responded to this year’s PwC/Urban Land Institute Emerging Trends in Real Estate survey were pessimistic, as a whole. Reponses to our own Web poll during late September and early October likewise came in more negative than positive: 43 percent of almost 150 respondents said they expect a global recession; another 37 percent predicted that volatility will work itself out, and 20 percent said that a partial crash of the world financial system is ahead. Furthermore, the CMBS market, which made a surprisingly rapid return but never really picked up steam, has now pulled back again. And the most optimistic predictions from economists now indicate that we will bounce along at the current level for at least another year.

Yet both the office and industrial sectors saw absorption turn positive this year (retail turned positive last year), according to CoStar Group Inc., and their performance should improve even further next year. Office vacancy rates are expected to remain in the double digits, but at 12.5 percent for third-quarter 2011 and 12.1 percent expected at the same time next year, they are still relatively low.

Moreover, despite widespread investor pessimism, institutions played their hands as expected this year, placing capital into real estate and thereby boosting annual volume. By Sept. 30, year-to-date transactions had already reached $143.5 billion in value, more than the tally for all of 2010, despite a third-quarter slowdown, according to Real Capital Analytics Inc. Institutions and advisors are generating plenty of investment activity. Topping the list of portfolio buyers this year were Hyatt Hotels, Hong Kong-based New World Development Co., JPMorgan Chase, AREA Property Partners and Five Mile Capital Partners L.L.C. Meanwhile, single-property purchases were led by Simon Property Group Inc., RXR Realty, JPMorgan Chase, EDGE Fund Advisors and UBS.

Nor were these the only active players. Leading real estate executives from a variety of companies have crafted strategies that are allowing them to navigate rough waters and helping to keep capital flowing into the real estate market. Such innovation and skill has won these executives the recognition and approval of their peers—as evidenced by their selection as CPE’s 2011 Executives of the Year.

These are the times when such leaders are most needed—and the times that reveal true leadership skills. While the markets equivocate, such achievers will be there to light the way through the haze.