Good Fundamentals Buoy Real Estate Execs

While anarchy reigns in the residential real estate market, commercial real estate executives believe that commercial real estate market fundamentals remain solid, according to a report issued by the Real Estate Roundtable and the FPL Advisory Group.“The fundamentals referred to in the report are supply and demand,” William Ferguson, co-chair and co-CEO of FPL told CPN today. “During the last major downturn in the early 1990s, there was tremendous over-development and over-supply. When demand diminished, there were terrible problems. But today, the fundamentals of supply and demand are pretty much in balance.”The report, Leading the Enterprise 2008, surveyed nearly 200 CEOs and other senior executives in real estate and related industries on their expectations for 2008. According to the report, 69 percent of the respondents forecast increases in revenues during 2008 and 71 percent expect profitability to increase. By contrast, 85 percent predicted increased revenues and 80 percent predicted increased profits in last year’s survey. The report includes a number of anonymous quotes from industry executives on a variety of topics. Several executives evaluated current market fundamentals from a relatively positive point of view. “For the foreseeable future, I do think that demand will outstrip supply in the real estate industry, and hence things should remain reasonably stable,” said one. Another added, “The fundamentals of the real estate business are still strong, so our thought is that they’ll give back what leverage took away. Even though many buyers are on the sideline today given the unsettled pricing environment, better prices will ultimately evolve, and we’ll be able to compete much more effectively.” According to the report, another anonymous source stated that, “Right now, the fundamentals are OK, but we’re watching them closely. We see some softening, particularly in retail, but we don’t envision a disastrous downturn. Regarding the capital markets, only those deals which are perfectly underwritten and structured are getting done today.” When asked to evaluate the greatest challenges facing the industry this year, thirty-three percent of the executives, the largest group of respondents, told interviewers that finding appropriate investments would be difficult given high asking prices and the continuing turmoil in the capital markets. “There is a whole new set of economics today,” said one respondent, “and we need new partners for growth.”