NEW YORK, Feb. 19 /PRNewswire/ -- In the wake of last year's dramatic
dislocation of global credit markets and the ongoing deterioration of
mortgage markets in the US and abroad, Ernst & Young's Global Real Estate
Center today announced highlights from its soon to be released Global Real
Estate Market Outlook 2008. "The distress facing many in the US residential
and commercial real estate market is very market-specific; some markets
remain strong, while others have weakened," said Dale Anne Reiss, Global
Real Estate Director for Ernst & Young. "The situation isn't likely to ease
in 2008 and, with the lack of available financing and the specter of
recession in the US, we expect real estate market conditions both here and
abroad to be difficult through this year."
The Outlook offers key global trends in real estate and offers insight
into how these trends might impact real estate development, investment,
financing and use in the year ahead. Top ten trend highlights include:
Expansion of Global Capital: With many US investors still on the
sidelines following the credit market dislocation in August 2007, foreign
buyers are likely to step into the vacuum for commercial assets and will
continue to do so -- especially in 'gateway' US markets such as New York,
Washington DC, Miami, Chicago, San Francisco, Los Angeles, and other
coastal markets.
Growth in Infrastructure Investment: According to Ernst & Young polling
research, the credit crunch has had little discernible impact so far on the
fledgling infrastructure investment sector and, in fact, many think it will
spur greater investment in infrastructure because of the attraction of
stable cash flows. This is especially likely in the US where most states
are bracing for further revenue declines in 2008 and 2009 as a result of
the housing downturn.
Housing Markets: More Pain to Come in the US and Abroad: What started
as a problem in the relatively small subprime mortgage market has spread
quickly to affect housing markets in the US and abroad, demonstrating just
how inter- connected real estate around the world has become. Although no
one knows the magnitude of the housing and subprime problem, defaults and
foreclosures in the US are likely to continue well into 2008 -- when
adjustments on ARM and other variable rate mortgages peak. When the
residential markets do eventually recover, the landscape of the housing
market is likely to look very different.
Commercial Loan Delinquencies and Defaults Anticipated: Our analysis
suggests the likelihood of increasing loan delinquencies and defaults in
the commercial sector in 2008. There are upwards of $50 billion in loans
still in the Commercial Mortgage Backed Securities pipeline following
August's bombshell, and it remains to be seen how many of those deals will
stay in place. It will be important for lenders to "stress test" their loan
portfolios, enhance their underwriting practices and come to grips with
their risk.
Pain in Residential Land Development Business Triggers Opportunity:
While homebuilders and land developers look set to suffer through 2008
while the housing sector works through its deep-seated problems,
knowledgeable, patient investors holding cash are likely to find a few
bargains, especially in residential land and lots they can hold for the
recovery. And, with interest rates once more nearing historic lows, and
credit markets likely to ease in the mid-term, even land purchases are
likely to be more readily financeable for borrowers with good credit.
Sovereign Investment Funding to Surge: Sovereign funds investing on
behalf of national governments are rising rapidly with investments that may
soon surpass private equity funding. Sovereign acquisitions are likely to
range from luxury properties in major markets such as New York and San
Francisco, to distressed US assets and emerging market properties.
Spreading the Investment Wealth Through Global REITs: The rate of
growth in REIT markets is growing stronger and will continue on a global
level through 2008. While the pace of privatization is slowing down in the
US, a global privatization wave is showing strength in more mature global
markets.
Private Equity Goes Global: New waves of private equity capital will
continue to spread around the world as institutional investors and larger
real estate operators enter into global joint ventures involving
collaboration to invest in countries or entire regions. And private equity
funds are carefully watching for distressed property acquisitions.
Water -- The Oil of the 21st Century: With growing concerns about
adequate water supplies, countries and municipalities are looking to better
leverage their resources and take advantage of private sector expertise and
efficiencies. Significant privatization of water supplies and water
treatment systems are becoming a trend globally and are likely to be
followed by sanitation system privatization.
New, Significant Regulations Ahead: The real estate industry should pay
close attention to several major regulatory developments that will impact
accounting and financial reporting. Impacting real estate transactions, two
new accounting standards will come into force in 2008 that focus on how
assets are booked. These new rules change the use of fair value accounting
and shake up the very concept of "fair value." Even more daunting for US
companies will be International Financial Reporting Standards, which are
standard in Europe but under consideration by the US Securities and
Exchange Commission to potentially replace Generally Accepted Accounting
Principles.
"The real estate appetites of private equity funds and sovereign
governments combined with broader, global real estate dynamics could help
guide the market out of this gray period," said Reiss.
About Ernst & Young
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Ernst & Young Global Limited, a UK company limited by guarantee, does not
provide services to clients.
This news release has been issued by EYGM Limited, a member of the
global Ernst & Young organization that also does not provide any services
to clients.
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