Analyst predicts '92 will be good year for real estate Prices may stabilize next quarter, he says

December 22, 1991|By James M. Woodard | James M. Woodard,Copley News Service dHC B

At least one real estate analyst is taking a bullish, optimistic view of the 1992 real estate market.

This applies to home sales as well as investment real estate activity. Here is the view of Robert E. Davis, director of real estate markets for Arthur Andersen & Co.:

"The dramatic two-year decline of values for investment real estate is finally slowing and prices should begin to stabilize by the first quarter of 1992.

"Prices for high-quality properties appear to have reached the bottom of the trough," Mr. Davis says. "While real estate values may not improve much, they should not get any worse. Prices for quality properties have dropped to the point where the economic rationale for purchasing [real estate] should be explored."

A narrowing of the gap between offered and asking prices of real properties has been the tourniquet that has slowed the bleeding in real estate values, according to Mr. Davis. Both buyers and sellers are becoming more realistic in their pricing strategies now that real estate transactions have been at a virtual standstill for the past 12 to 18 months.

Mr. Davis believes this important first step should help stimulate deal-making and open up the flow of capital in real estate.

Activity in real estate investment can be segmented into three categories, according to Mr. Davis.

He calls the class with the greatest risk and correspondingly higher overall rate of return "opportunistic investments." The principal sources of product will come from the Resolution Trust Corp., thrifts and other financial institutions that have foreclosed on properties and are compelled to sell them at fire-sale prices.

These investments are inherently risky. Investment pools created exploit the current down cycle, commonly referred to as vulture funds, will be most active in this market.

Middle-market investments are economically viable properties that could not be refinanced because of the real estate credit crunch.

By and large, these situations have not yet been targeted by major groups and the competition is somewhat limited.

"Domestic and offshore institutional investors are expected to be most active in the top-tier market investments," Mr. Davis said. -- "These assets are traditionally fully stabilized properties.

"Recently, the initial investment yields on these property types have increased . . . from their peak in 1988. However, since no future competitive construction is anticipated, their values should increase substantively over the next three to seven years."

Mr. Davis expects American pension funds to be among the first significant buyers of real estate in 1992 and he believes that activity, although minimal at first, should help restore confidence in real estate markets.

This, in turn, should help stimulate activity by offshore investors/financiers.

High on their shopping list will be apartments, large regional shopping centers and industrial properties.

Mr. Davis believes institutional investors will probably wait until 1993 before considering significant investment in commercial office buildings. On the other hand, office properties with XTC long-term leases to "credit-rated" tenants should once again attract financing, according to Mr. Davis.

We'll be focusing on the experts' view of the 1992 residential real estate market in upcoming columns.


Q: What is the Hometime Home of the Future?

A: It's a one-of-a-kind ultramodern model home recently completed in Minnesota. It's a joint project of Public Broadcasting's Hometime program, Better Homes and Gardens magazine, and Bloodgood, Sharp, Snider, Architects.

The Home of the Future was the main attraction of the 1991 Twin Cities Parade of Homes, sponsored by the Minneapolis Builders Association. It also was the subject of a five-part series of Hometime programs airing on PBS TV stations.

Questions may be used in future columns; personal response should not be expected. Send inquiries to James M. Woodard, Copley News Service, P.O. Box 190, San Diego, Calif. 92112-0190.

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