Real Estate

MorrisAnderson has a strategic relationship with Frontline Real Estate Partners, a commercial real estate advisory firm providing consulting and advisory services in bankruptcy and distressed situations, as well as selectively acquiring distressed real estate assets. MorrisAnderson clients and referral sources now have unique access to in-house real estate services, including management of receivership and bankruptcy transactions.

State of the Industry

  • Positive signs continue to emerge in the commercial real estate industry, however many market experts believe we are in the early-to-middle innings of the down cycle and it will be several years before the market returns to a normalized state.  
  • The uncertainty in the commercial real estate industry is in part due to the $1.4 Trillion of debt coming due by the end of 2014, of which over 50% is backed by properties that are underwater.  
  • Commercial real estate prices continue to “bounce along the bottom” except for premium assets in major metro markets.  
  • There is a continued “flight to quality” with buyers focused on strong cash flows, stable credit tenants, and quality real estate.  
  • Investors, lenders, and other market participants are having significant difficulty in valuing real estate assets due to the lack of comparable sales over the previous two years and the uncertainty in predicting the length of time to stabilize properties and the rents to be achieved.  
  • While huge sums have been raised to invest in distressed real estate deals, there continues to be a bid/ask gap between buyers and sellers and buyers with cash are holding out for the best deals with the lowest risk profiles.  
  • There is a significant dichotomy between core assets in major metro areas which are experiencing heavy demand vs. non-core assets in secondary and tertiary markets which have minimal demand.  
  • Debt financing is now available for quality real estate with strong credit tenants but continues to be very difficult for Class B and C real estate in smaller markets. 

6- to 12-month Outlook

  • Huge sums continue to be raised for commercial real estate acquisitions; however most of this capital is focused on high quality assets in top tier markets.  The environment for non-core assets in secondary and tertiary markets will continue to be very challenged with little demand and difficulty in obtaining financing for these properties.  
  • A continued uptick in transaction velocity is expected in 2011, largely due to the low interest-rate environment creating huge demand for stable cash flow real estate properties.   
  • Major volatility in commercial real estate pricing will continue, with values for multi-family and retail assets continuing to rise but values for industrial and office properties experiencing declines.
  • Lenders and special servicers will get more aggressive in disposing of non-performing assets creating more activity in the distressed arena.  
  • More bank failures are expected over the next 12 months, primarily local and regional banks with large exposures to commercial real estate.