Real estate investors and investment management firms are patiently sitting on their capital as they wait for the dust to settle on the real estate market.
The best strategy is to go for a long vacation in the Antarctic for nine months, said Jeremy Newsum, chief executive and director at global real estate investment firm Grosvenor Group Ltd., London.
Investors all know their commercial real estate portfolios will take a hit. There isnt much they can do about it, except maybe take a hard look at their investments to guard against any surprises, said Micolyn M. Yalonis, principal at consultant the Townsend Group, Cleveland.
A dearth of transactions is making it almost impossible for investors to determine the value of real estate, especially in the U.S. and other developed countries. Everyone expects property values to drop, similar to the problems now roiling through the residential market, but nobody knows when or how far they will fall.
With few exceptions, all but investors with large uncommitted real estate allocations are staying out of the market. Everyone is waiting for the other shoe to drop or the transaction volume to pick up, said Ms. Yalonis.
Despite closing the $1 billion Canyon-Johnson Urban Fund III sponsored by a partnership of Canyon Capital Realty Advisors LLC and Earvin Magic Johnson theres no hurry to invest the capital, said Bobby Turner, the funds managing partner.
We will sit on the sidelines for a while, said Mr. Turner, who is a managing partner of both Canyon Capital Realty Advisors and Canyon Capital Advisors LLC, Los Angeles-based money management firms. There will be great opportunities if you are not investing for six to 12 months.
Current sale prices are too steep, development costs are too high and distressed opportunities too sparse in commercial real estate, he said.
The problem is that in the go-go days, property prices shot up. While commercial property prices have not dropped much in most sectors and locations, the easy credit days ended when the banks, which accounted for roughly 70% of the lending, snapped off the loan spigot.
People were convinced that real estate is a liquid asset, Mr. Turner said.