Investment Activity Stands to Gain Ground in 2011

This may well be the year of the foundation. According to Grubb & Ellis' current real estate forecast, fundamentals may have years to go before returning to their pre-recessionary peaks, but some encouraging signs are providing a solid base.

This may well be the year of the foundation. According to Grubb & Ellis’ 2011 real estate forecast, fundamentals may have years to go before returning to their pre-recessionary peaks, but some encouraging signs are providing a solid base.

“The domestic debt markets experienced a strong recovery in the second half of 2010,” the report asserts. “Driven by the low interest rate environment, lenders were active building up a pipeline for year-end.”

Lenders are also continuing to exercise caution, with a primary focus on core markets and assets, credit sponsorship and cash invested. Banks are also considered the wild card of 2011’s lending environment, according to the report. That said, lenders and mortgage bankers are said to expect the current jump in volume and activity to carry into this year. Grubb forecasts conduit originations at $30 billion on the low end and as high as $50 billion. “With sixteen-plus CMBS shops quoting new business, the market can expect to see this sector become a bit competitive as we move through 2011,” the report reads. “We have already seen lenders compete for good, solid deals and expect the trend will continue.”

However, the outlook is not equally rosy for all property types. While core, well-leased assets are seeing demand, distressed low-occupancy assets are trading for modest amounts. Properties between those extremes are still struggling to attract buyers and underwriters. Fortunately for owners of these less fortunate properties, Grubb believes that lenders and investors will start broadening their outlook this year, which in turn will lead to more high-risk activity.

Here’s where the b-word – bubble – may come in. When that word does come in, however, it may be wise to keep in mind that there is a difference between recovery and a quickly expanding bubble. Let’s hope we experience far more of the former than the latter.