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Industry Leaders Forecast Skittish Real Estate Market, Tough Financing
January 22nd, 2008
Crystal balls usually are in high demand at year’s end because of a desire to know what the future will hold. This year leaves the business community -- and the real estate industry in particular -- with even more questions about what’s in store for 2008 and beyond.
As 2007 winds down, the economy is being hammered by a housing meltdown, soaring foreclosure rates, tightening credit, the looming employer sanctions law, stiffer pollution penalties, and an uptick in state and Valley unemployment.
Instead of asking a psychic to read the future, the Phoenix Business Journal asked real estate and construction industry experts for their take on the economy -- the good, the bad and the uncertain.
Given such a dubious business and economic climate, some of their answers may be surprising.
What is the greatest concern facing local real estate and construction companies in 2008?
Mike Fitz-Gerald
Managing director
Colliers International-Greater
"How deeply the subprime fiasco will affect commercial markets (and) the increasing vacancy in all submarkets in 2008."
Jeff Roberts
Vice president of real estate and development
Opus West Corp.
"The tightness of the credit market has had a significant impact on a commercial real estate buyer’s ability to obtain a loan and therefore purchase property. This has caused real estate values to decrease 5 percent to 10 percent over the last half of 2007. At the end of the day, this may be the greatest uncertainty facing real estate companies in 2008."
Tim Lawless
President
National Association of Office and Industrial Properties,
"Like everyone else, our biggest concern is whether we will escape a national recession next year. While this is out of our control, how the state responds to the slower growth is not. For instance, state policy makers currently are faced with a $1 billion budget deficit for this year and a $1.8 billion structural budget deficit for next year that will involve tough choices. We will be advocating that these choices not include tax increases, which will harm our economic competitiveness."
Crocker Liu
McCord chair and professor of real estate
"Whether the subprime mortgage crisis puts the economy into a tailspin. Interest-only money has dried up, and what money can be had has more due diligence associated with it."
John Vatistas
Chairman
Equitable Sotheby’s International Realty
"An excess inventory of overpriced homes. Foreclosures will continue. Lending will continue to tighten and make qualifying for homes much more difficult."
Is the subprime mortgage meltdown in the residential sector spilling over into commercial investment?
Craig Henig
Managing director
CB Richard Ellis
"The commercial sector definitely is feeling the effects from the fallout of the subprime debacle. Unlike the days of the Resolution Trust Corp., there is an abundance of capital waiting on the sidelines, waiting to see when the pricing has hit bottom."
Craig Coppola
Principal
Lee & Associates
"Yes. Getting debt is harder and more expensive. Tenants are closing shop or subleasing, making the market softer. Buyer confidence over the next year is shaken, creating a cautious environment."
Managing principal
Development Planning & Financing Group Inc.
"(It has) affected liquidity at all levels of investment. As a result, lenders are raising underwriting standards on all product types, including commercial properties. Nevertheless, the Federal Reserve is signaling to banks through its continued lowering of the discount rate that they should continue to lend money to those who are qualified."
LIU: "The subprime mortgage meltdown is making it harder to obtain financing since a lot of the subprime stuff was rolled into a collateralized debt obligation, which in turn was rolled into a structured investment vehicle, which was backed by asset-backed commercial paper. They will have to refinance this ABCP, and the question is where the money to refinance these deals will come from."
VATISTAS: "It already has. Commercial lenders are becoming much more conservative and skittish. It will affect the cash required to develop more speculative-type properties. Lenders are looking for much more skin in the game."
How much will foreign investment come into play in
Jeff Dalton
Vice president and Southwest division manager
JE Dunn Construction
"Foreign investment will continue to increase as the dollar loses value internationally. Currently we are working with investors from
Julian Anderson
President
Ryder Levett Bucknall,
"Watch for money from
LAWLESS: "Oil-rich nations will continue to invest profits in the
VATISTAS: "We are seeing both investors and home buyers from
Several curve balls have been thrown into the
Tom Johnston
Senior managing director
Cushman & Wakefield of Arizona Inc.
"The immigration sanctions will affect the multihousing market, particularly in west and southwest
Eric Hedlund
Senior vice president
Sundt Construction Inc.
"As a company, Sundt has participated in the pilot program, and we feel very comfortable that we will have no impact with our work force because of the employer sanctions bill. The serious issue facing the construction industry is the critical shortage of a skilled, legal work force. Neither federal nor state legislation has addressed this key issue, and proactively solving this issue is important to the future of our industry."
