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Private equity, REITs, and foreign investment to drive turnaround in US commercial real estate financing

A survey of some 200 real estate industry leaders, who gathered last Friday at Akerman Senterfitt’s second annual US Real Estate Summit, revealed an optimistic industry looking at opportunities in various sectors despite continued financing challenges.

Signifying a recovering industry, 77 per cent of respondents indicated their outlook for the market in 2011 was more optimistic than it was in 2010. In addition, a common theme at the Akerman Summit was access to capital and other continued financing challenges for the industry, as banks continue to work through significant issues in their real estate portfolios. When asked to rank where commercial real estate debt and/or equity will come from in 2011, respondents indicated that a significant amount would come from private equity, REITs, and foreign investment. Notably, only 10 per cent of respondents saw a significant amount from banks and 25 per cent of respondents believed a significant amount of financing to come from pension funds.

Furthermore, 71 per cent predicted that multifamily property would be the most active market sector in 2011, far more than the second and third chosen sectors, hospitality and industrial, at 26 and 27 per cent respectively. Shifting capitalisation rates, a consistent theme at the day-long summit, also proved to be an important issue for respondents, with 44 per cent forecasting decreased cap rates in the hospitality and multifamily sectors. On average, 75 per cent of respondents predicted a decrease or no change to cap rates across all industry sectors.

Looking further down the road, 57 per cent of respondents predicted that multifamily development would return to pre-recession levels within the next two years. Hospitality and industrial development were seen as returning in the next three years with the office and retail sectors still four years out.

Other notable survey results include:

The most active market segments include the Southeast (39 per cent), Mid-Atlantic (33 per cent), and Northeast (25 per cent)

Indicating the industry’s focus on urban redevelopment projects in the recovery, 84 per cent of respondents said urban redevelopment sites will garner more interest in 2011 for new development projects than will greenfield properties

Respondents were evenly split along the lines of the benefits of green building with 50 per cent predicting that green building projects will garner more demand and/or higher prices in 2011 and 50 per cent disagreeing

The survey included representation from all aspects of industry leadership including asset managers, builders and developers, REITs, regional and national lenders, and private investors.

The day-long Summit featured several panel discussions on issues ranging from deal structure to capital market access and policy revisions. Notable sessions included a keynote address from Stanley Tate, Founder and CEO of Tate Enterprises and former Chairman of the National Advisory Board of the Resolution Trust Corporation (RTC). Kicking off the event was a marquee panel moderated by Sule Aygoren Carranza, Editor-in-Chief of Real Estate Forum and featuring Thomas Sittema, CEO of CNL Financial Group and Vincent Signorello, COO and acting CFO of Flagler Development. Video of select panels and a full overview of the Summit can be found here.

"There are several signals of recovery in the commercial real estate industry, including significant investments by REITs and private equity firms, as well as heightened foreign interest in US markets. Despite these important indicators, many challenges remain for the industry including distressed debt, availability of financing, and softness in the rental markets," says Richard Bezold, Chair of Akerman’s National Real Estate practice. "We are honored that we could contribute to this ongoing dialogue by hosting the Akerman Summit."

Akerman’s Real Estate practice group represents clients in complex real estate transactions, development and redevelopment projects, public-private initiatives, loan recovery, and litigation matters. Recognized nationally by PLC Which Lawyer?, the group offers substantial industry experience and prominent local presence, advising corporations, developers, investors, and governmental entities, often in high profile matters.

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