Report: bottom to come in 1993 - annual report from Emerging Trends in Real Estate forecasts increase in real estate values in 1993

Real Estate Weekly, Nov 11, 1992 by Therese Fitzgerald

1993 will bring the end to falling real estate values in most property types, predicts the 1993 edition of Emerging Trends in Real Estate, an annual report issued last week by Equitable Real Estate.

All asset classes, however, are not expected to realize growth again in the next year. The findings, compiled from interviews with 100 leading real estate professionals, point to "modest" increases in value for apartment complexes and industrial structures in 1993 and some improvement for retail in 1994. Office properties are not supposed to see a steady climb in rents and values before late 1995, and hotels not until 1996.

Douglas A. Tibbets, president and chief operating officer, of Equitable Real Estate Management, Inc., told a press conference gathering: "I think the question is how long can we live at the bottom ... ? What is the oxygen supply for everyone to live at the bottom."

Nonetheless, Tibbetts said, this year's results, are the most positive in years.

"It's really the first glimmer that's come through the report since 1986," he said.

Tibbetts said the report shows that real estate remains a viable asset. This, he said, is being reinforced by the pension fund community. Equitable's client base, he said, over the next 12 to 18 months will allocate $2 billion toward property investment.

Also in the report described is a "Darwinian" environment, Tibbets said, in which "the capital-rich will prosper."

The findings are prepared by Equitable Real Estate Investment Management, Inc. and Real Estate Research Corp. According to Tibbetts, this year's respondents reflect the changing face of real estate. This year's 100 was comprised largely of institutional investors, banks and pension find managers. In 1986, the bulk of the interviewees were developers.

Further writedowns of about 8 percent are expected for office buildings, says the report, while the lack of new construction and a shrinking inventory makes multi-family residential the best investment for 1993.

The report finds that technological advances threaten to make certain industrial properties obsolete and lower the demand for office space.

Single-family home development is receiving increased interest from institutional investors because of high developmental returns. And again this year there is a positive outlook for farm investments.

In the area of property acquisition, the survey predicts a narrowing between bid and ask prices as prices become more realistic. More owners will take writedowns." Only then, "Tibbetts said, will there "be a chance of appreciation."

The lowering of prices, the report predicts, will encourage some capital sources to get active again, with entrepreneurial capital, not banks, taking a cautious lead.

Securitization of commercial mortgages is expected to rise, but less "enthusiasm" for REITs and other equity products is predicted.

On the "Cities to Watch" list, which ranks city's by the level of short-term investor confidence on a scale of 1 to 10, New York appears at the bottom with a ranking of 3. Washington, D.C. topped the list with a 6. Atlanta and Seattle followed both with a 5.7.

Ken Riggs of the Real Estate Research Corp. noted, however, that new production in the real estate industry has stopped all over. Riggs emphasized that any predictions for a turnaround and growth, put forth in the report, are for value and not a signal that new development can begin.

As for The Big Apple, he said, "New York tends to take a roller coaster ride other cities don't."