JP’s predicition about a real estate crash… - Posted by Daniel Lubell
Posted by Daniel Lubell on October 15, 1998 at 01:13:58:
Commercial credit crunch
Developers watch funds disappear
Friday, October 09, 1998
Inman News Features
Real estate developers and investors around the country are finding themselves ensnared in the worst credit crunch the industry has seen since the 1990 recession.
During the last 60 to 90 days, debt for most speculative development has begun to evaporate in markets nationwide, leaving many builders and buyers high and dry.
“The spigot is being turned off on the supply of funds for real estate,” says Stephen B. Siegel, president and chief executive of New York-based Insignia/ESG Co.
“Speculative development is now on the back burner or totally canceled.”
Siegel was one of the speakers at Thursday’s meeting of the Urban Land Institute in Dallas.
Worries about the national economy and a sharp decline in commercial real estate activity are the central topics of discussion at this annual commercial property industry conference.
The suddenness of the pullback of many lenders and buyers has caught even the most cautious investors and builders by surprise.
“This has been the fastest (credit shutoff) I have ever seen and the most viscous,” said Michael Fascitelli, president of New Jersey-based Vornado Realty Trust. “I think it?s going to get worse ? a lot worse ?before it gets better.”
With debt for new deals drying up and most real estate investment trust buyers pulling back, the property investment market is in turmoil.
Just a few months ago the news was record prices paid for properties. Now, sellers are in a panic as the line of potential buyers for deals has vanished.
“I know of eight or nine people that have put off investments,” Fascitelli told ULI members. “In New York there is $8 billion of stuff for sale and there is not enough money.”
With their stock values down by more than 20 percent this year, real estate investment trusts in particular have no appetite for new investments.
“We have not gone forward with a single transaction virtually in the last 90 days,” said Douglas Crocker II, president of Equity Residential Properties Trust, a Chicago-based REIT.
As property prices retreat from recent peaks, lenders still
in the market are in a quandary.
“We don?t have a good sense what value is,” said Stuart Silberberg, with New York-based Capital Corporation of America. “It?s going to take quite a while to sort things out. Before you see a market comeback is probably six months.”
Not everyone is complaining about the slowdown in real estate activity.
During recent months concerns about potential overbuilding and fears that some investors were
overpaying properties had begun to grow.
“It would appear that the capital markets are going to save us from ourselves,” said Dallas real estate broker Jerry Fults. “There isn’t much opportunity to develop new speculative space going forward. It would appear we are in for a soft landing.”
While most analysts concede a national economic slowdown is beginning, they say the real estate industry can expect a quick comeback.
"We are going into a recession with every high occupancies and with a fairy quick cutback in
construction," said Jonathan Litt, senior real estate
analyst with Paine Webber Inc. "Real estate is going to
come out of it with flying colors."
Copyright 1998 Inman News Features