Real Estate: Heads or Tails?

July 8, 2008

Whether your perspective is that of a real estate fund or a home-dweller, it's tough to get a read on today's real estate market.

As a renter, someone who hasn’t been able to benefit from lax lending standards or low interest rates, I’m selfishly optimistic that we haven’t hit a bottom yet. I’ve been priced out of every area I’ve ever lived post college, and the new constructions that spring up around my current dwelling every month – credit crisis be damned –  serve as a reminder for me to not become too comfortable. (Within three blocks of my  apartment, I’ve counted at least six new projects that are at various stages away from completion).

On real estate message boards, I’d be considered the typical bitter renter. It would probably be an accurate portrayal, since I spent 1999 through 2007 speculating with every new lease that the market had finally hit a top. It turns out that I was finally right last year. Unfortunately, the Brooklyn real estate market has yet to be impacted, at least to the degree that would make me a buyer.

But while on a personal level it pains me to admit this, signs are starting to emerge that real estate investors are settling on a bottom. Whether it's foreign buyers swooping in to buy a trophy property (the sale of the Chrysler building would qualify) or distressed funds being assembled to assume the banks’ REO assets (as we saw with Hilco’s latest effort), it seems like investors are selectively picking their spots to make a move.

At the same time, with every sale comes a seller who seems ecstatic that they were able to unload their assets. When CIT sold its real estate financing business last week, CEO Jeffrey Peek exclaimed in the conference call that the company is “lock, stock, and barrel out of the [mortgage] business.”

As I mentioned earlier, it’s tough to get a read on this market. Do you listen to the buyers, who might be catching a falling knife, or the sellers, who might be letting desperation overwhelm good business sense?

Our new monthly newsletter focusing on private equity real estate aims to help dealmakers sort all of this out. We'll cover deal news, people moves, fundraising efforts, sale/leasebacks and other financings, alerting investors as to who’s buying and who’s selling in the institutional real estate market. It may not help renters like me, but for investors with bigger fish to fry, it will track of all the major news defining the landscape.

If you have news to share, please send it to ken.macfadyen@sourcemedia.com