Furrowed Brows Are The New Black in Real Estate

Pessismism is back!

Raymond Torto, global chief economist for CB Richard Ellis, gives an unvarnished perspective of the global real estate market in his August "Global Viewpoint."

Some choice tidbits:

"The unwinding of the U.S. housing and mortgage market euphoria has produced tremors that, at mid-year 2008, have reached seismic proportions." (Editor's note: Yikes!)

"...It is our view that U.S. policy makers have aggressively and successfully addressed the problems of systemic risk in the U.S. economy. However, we expect more bad news during the next six to 9 months from the economy as job cuts continue, and from real estate markets as occupancy, rents and prices fall. That said, we feel the headlines do not accurately reflect U.S. or global real estate fundamentals. No one can predict when the trepidation will ease. But companies and investors, who prepare for more bad news with a strategy in mind in the short run and a plan for recovery in the long term, will emerge stronger in the end."

Regarding commercial mortgage-backed securities:

"[T]he U.S., the CMBS market is dormant—only $12 billion of originations during the first half of 2008 compared with $137 billion in the first half of 2007—as Wall Street lenders focus on restoring their balance sheets and repairing their reputations. Higher spreads, coupled with much tighter underwriting standards, have raised capital costs significantly and made property acquisitions less attractive for many buyers—particularly with sellers holding the line on pricing. The growing concerns about Freddie Mac and Fannie Mae have added to the negative market psychology, although the announced Treasury and Fed plans appear to have restored some level of confidence in the capital markets."

And, finally, the requisite thanks to foreign investors:

"Most equity investors continue to take a wait-and-see attitude. The exceptions are Sovereign Wealth Funds and other well-capitalized offshore investors, for whom iconic trophy assets hold strong appeal. This can be seen in the significant role of Middle East capital in Boston Properties’ purchase of the GM Building, and the recapitalization of the Chrysler Building. However, foreign fund activity is limited to a handful of major CBDs like New York, Washington, Houston and Los Angeles. Still, a market standoff prevails."