Part 1: Inside PWC - Emerging Trends in Real Estate 2009

Part 1: The beginning of a series of an ongoing look inside PricewaterhouseCoopers' Emerging Trends in Real Estate 2009 report. The first stop - an overview of where, what, when, and how you should be investing as reported and recommended by PWC's "Emerging Trends in Real Estate 2009" report:

Best Bets 2009: Investments


Be Patient and Husband Cash
Until sellers relent, investors should sit tight. "[Amass] as much capital as possible and wait" for prices that clear the market. Opportunities will surface at significant discounts to peak pricing and patience will be rewarded. "Investments made in 2009 could result in substantial future returns."

Buy Discounted Loans
Lenders will be offloading more loans at increasing discounts once the pressure builds to resolve damaged balance sheets. Buyers need to focus on underlying collateral, watching for wide disparities in asset quality and resiliency. They also must carefully scrutinize loan positions in the capital stack-mezzanine and lower tranches of senior debt "may have no value."

Recap Distressed Borrowers
Some overleveraged owners will look to lifelines from new capital sources rather than face defaults. Investors will be in the driver's seat-they can get better deal structure, more guarantees, principal paydowns, and bigger spreads. Invest in maturity defaults, construction loans/bridge loans, or take mezzanine positions and equity stakes. "You can get equity returns for debt risk."

Hold Core
Investors really have no choice-selling as vultures circle makes no sense. Well-leased properties with manageable rollover exposure will take paper losses after scoring years of outsized paper gains. Owners should step up tenant relations and leasing programs to maintain occupancies and cash flows.

Buy Public REITs
These stocks have taken a major licking, already factoring in much of the expected declines in private markets. They may experience more downside when negative headlines increase about rising commercial defaults and foreclosures, but will lead any market recovery. Many larger companies are well capitalized with manageable debt loads and should navigate ensuing turbulence as fundamentals falter-lowered share prices make their dividends look more attractive again.

Focus on Global Pathway Markets
The favored 24-hour coastal cities-D.C., San Francisco, New York, L.A., Boston, and Seattle-will hold value better and bounce back more quickly. Core players and offshore investors gravitate to these elite business and cultural centers linked directly to Asia and Europe commercial capitals. Hot-growth Texas markets-Houston and Dallas-show temporary strength as long as oil prices stay high.

Staff Up Asset Managers, Leasing Pros, Workout Specialists
"It's time to work your asset base the best you can and realize you can't stop losing some value. Do the best you can to lose less. Separate good assets from bad. It's property triage time. Put workout specialists on the bad assets and protect as much value as you can in disposing of them. Put the best asset managers and leasing people on good properties to improve cash flows and enhance future value."

The moral of the story - hold tight, be ready, significant opportunities should be right around the corner. Look towards discounted loans, public REITs, and concentrate your investments in "global pathway markets" (Washington, D.C., San Francisco, New York, L.A., Boston, and Seattle). Don't forget to keep an eye on Texas, specifically Houston and Dallas, as "oil" will play a significant roll in its impact of these markets.

Until then, tighten the ropes, refine your processes, and improve upon your existing management to make the best of what you currently have. Make money by saving money. If you can't hold on, employ the advice of experts to help you preserve as much value as you can while you try to dispose of the "bad assests".

PricewaterhouseCoopers - Emerging Trends in Real Estate 2009

As reported by PricewaterhouseCoopers in their "Emerging Trends in Real Estate 2009."

PWC's PDF Report:
http://commerce.uli.org/am/downloads/emerging_trends/emergingtrends2009.pdf

The preface to their "Emerging Trends in Real Estate 2009" report:

"A joint undertaking of the Urban Land Institute (ULI) and PricewaterhouseCoopers, Emerging Trends in Real Estate is a trends and forecast publication in its 30th edition; this year, it is expanding to cover real estate markets in Latin America. It is the most highly regarded and widely read forecast report in the real estate industry. The report provides an outlook on U.S., Canadian, and Latin American real estate investment and development trends, real estate finance and capital markets, property sectors, metropolitan areas, and other real estate issues. Emerging Trends in Real Estate 2009 presents a consensus outlook for the future and reflects the views of more than 700 individuals who completed surveys and/or were interviewed as a part of the research process for this report. Interviewees and survey participants represent a wide range of industry experts-investors, developers, property companies, lenders, brokers, and consultants. ULI and PricewaterhouseCoopers researchers personally interviewed over 270 individuals, and survey responses were received from over 440 individuals whose company affiliations are broken down as follows:

Private Property Company or Developer - 43.3%
Real Estate Service Firm - 18.6%
Institutional/Equity Investor or Investment Manager - 17.2%
Other Entity - 7.8%
Bank, Lender, or Securitized Lender - 4.8%
Publicly Listed Property Company or REIT - 4.6%
Homebuilder or Residential Land Developer - 3.7%

A list of the interview participants in this year's study appears at the end of this report. To all who helped, the Urban Land Institute and PricewaterhouseCoopers extend sincere thanks for sharing valuable time and expertise. Without the involvement of these many individuals, this report would not have been possible."

In an upcoming series of posts, we will begin to take a closer look at the data within PWC's October release of their "Emerging Trends in Real Estate 2009" report.