Experts Forecast Attractive Returns for 2001 Real Estate Investments

NEW YORK CITY-The outlook for commercial real estate investments over the new few years is solid and is expected to outperform the stock market in 2001. Investors should not expect breathtaking returns however. Overall, unleveraged returns of 11% are anticipated for equity real estate; REITs should turn in a 12% gain. These are among the forecasts of “Emerging Trends in Real Estate 2001,” a report based on interviews with more than 150 industry experts.

Those interviewed regard the B/B+ apartment buildings in the East and West Coast as buy or hold properties. Twenty-something singles are priced out of upscale class A space, the report states. “It’s hard to miss in this sector, given the long-term trends, but buyer demand may force pricing up to uncomfortable levels, especially for new product.”

Emerging urban centers with 24-hour city characteristics that are embedded in the suburbs offer the best opportunities for new multifamily construction due to the influx of the move-back-in crowd.

As far as offices are concerned, Downtown space gets a buy or hold recommendation by 89% of those interviewed because they are attractive to tenants seeking to escape the traffic of the suburbs. If the economy remains strong, higher rents can be realized by owners as leases rollover. Class C space properties in Downtown should be sold, however. The current high demand for space has hidden the fact that many of them are older structures that could be hard to move if the market softens.

Class A distribution space near airports, ports and major interstate interchanges are attractive buys outside Los Angeles, San Francisco, Dallas, Chicago, Atlanta, northern New Jersey and Miami, the participants believe. The space must have superflat floors, plenty of doors, high-pressure sprinklers, wide truck aprons and HVAC to interest tenants, however. Older warehouses with lower ceilings will deliver declining investment returns and should be liquidated now.

Decline in the room revenue growth of full-service hotels continues to fall, although this sector should turn in decent returns this year as long as a healthy economy keeps businesspeople and tourist on the road. Limited-service facilities offer the least promise; they were rated the lowest of any property sector in the history of the survey. The reason: too many of them.

Fortress malls, which attract upscale shoppers in the top metropolitan areas are given high marks for investment, but they make up only about 10% of the 2,000 regional centers around the country and owners are not in a selling mood. The value of class B and C non-fortress malls continues to slide to the point that class B properties have reached opportunistic pricing levels.

For the past 22 years, the Emerging Trends Survey has been published annually by Lend Lease Real Estate Investments and PricewaterhouseCooper.