Report sees U.S. commercial real estate bottom for 2010

Retail and office properties will take the biggest hits, the report said, as nervous consumers curb spending and companies delay rehiring. Many landlords who are barely hanging on now will lose their grip in 2010 -- and some investors can hardly wait.

“Our report participants find that a sense of nervous euphoria is growing among liquid investors who can make all-cash purchases,” said Stephen Blank, a senior resident fellow at the Urban Land Institute. “Those that are patient, daring and selective could score generational bargains on premium properties from both distressed sellers and banks that are clearing out unwanted bad loan and real estate owned portfolios.”

Among those poised to leap is real estate fund manager Xavier Gutierrez of Phoenix Realty Group. The New York-based company is sitting on US$450 million it has ready to buy real estate. The money will be invested on behalf of pension funds and insurance companies, he said.

The current real estate scene is “definitely grim,” Gutierrez said, but the outlook for three years from now and beyond is much better.

Apartments may be the first commercial real estate category to recover as large cohort of people in their 20s leave home or stop doubling up with roommates when their economic status improves, Gutierrez said.

Hotels, which have been particularly hard hit by the recession, can also bounce back quickly when the economy improves, said Cavota of PriceWaterhouseCoopers. Office buildings, which are dependent on hiring, and malls, which are dependent on consumer confidence, probably will take longer to recover.

Real estate industry leaders who are meeting at the Urban Land Institute's annual gathering in San Francisco are more optimistic than they were at this time last year because they can see the reckoning finally on the horizon, said Richard Green, director of the University of Southern California Lusk Center for Real Estate.

“The mood is considerably lighter,” he said.

He is concerned, though, about whether bankers will do what he thinks they should.

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