Survey Says: Capital Markets Outlook Dim

News has been coming fast and thick about the volatile capital markets landscape, but mostly it features overall trends and large abstractions. But what about the observations of those working in the trenches of the capital markets or those in real estate directly affected by it? The 2008 Capital Markets Survey, orchestrated by the Chicago chapter of CREW–Commercial Real Estate Executive Women–gives some insight into what’s going happening on the ground in commercial real estate finance. CREW Chicago surveyed the nationwide membership of senior-level executive women across all real estate-related sectors to set the framework for a luncheon discussion it hosted last week in Chicago. The organization has about 8,000 members. Unsurprisingly, the outlook isn’t positive. A majority (52 percent) of CREW members surveyed expected overall investment activity in 2009 to decrease by at least 10 percent and as much as to 50 percent. Also, fully 96 percent of the members surveyed expect commercial defaults to increase during 2009, which until recently have been very low indeed. “Recent events are magnifying the challenges of the investment markets,” Jamie L. Hadac, vice president of Foresite Realty Partners L.L.C. and CREW member, told CPN this morning. “Lack of debt liquidity requires the experience of seasoned professionals who have been through down cycles before and understand that patience and consistency are valuable tools. One needs to apply unemotional standards to highly volatile situations.”CREW Chicago reports one Chicago area receivership firm that grew from managing five properties in the beginning of 2008 to 40 now, and the year is not even complete yet. The survey also indicates an increasing trend in lenders adding workout personnel. One small Chicago lender has increased its workout team from four to 44 in less than a year, representing more than 1000 percent growth in workout expertise. When asked what will have the biggest effect on 2009 capital markets activity, respondents most commonly cited the continued failure of major financial institutions, lack of market confidence, and the presidential elections. Sixty percent of respondents believe that a change in government will have a positive impact on capital markets. When asked what their businesses are doing in light of recession concerns, cost containment and increasing investment on distressed properties were most often mentioned. Other survey results revealed that 65 percent expect the amount of equity capital available for investment in commercial real estate to decrease relative to 2008, while 30 percent predict no change in availability. Forty-five percent of the respondents expected cap rates to increase by 50 to 75 basis points during 2009.