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Global Real Estate Recovery Encouraging

03/18/2011 | By Carisa Chappell

The real estate market has changed dramatically within the past year, according to Rick Sinkuler, global markets leader for real estate at Ernst & Young.

Speaking in March during the Global Real Estate Summit sponsored by the Akerman Law Firm, Sinkuler said that while 2010 was plagued with uncertainty and anticipation of distressed real estate transactions coming to the market, "in reality, 2010 ended up being the best year that never was."

Sinkuler said that REITs around the world posted positive returns and double-digit increases in just about every major stock index. He also added that 2010 witnessed transactions taking place at cap rates below 5 percent, CMBS credit spreads of 150 basis points and LTVs in the 70 percent range.

Sinkuler told the audience of about 200 real estate executives that global property transactions are far below their peak in 2007. However, transaction volume increased 44 percent from 2009, which he said indicates a return of liquidity and a resurgent appetite among commercial real estate investors.

While the global numbers are encouraging, Sinkuler warned investors to fully understand the assets, the markets in which those assets reside, the regulatory enforcment systems, tax regimes and culture before putting investment dollars on the line.

"Global investors flocked to prime properties in the most desirable markets in 2010, however as investors gain confidence this year they will start to broaden their horizons in search of higher yields this year," Sinkuler added.

Approximately 50 percent of the property transactions recorded in 2010 took place in Asia, where the bulk of global population and economic growth is expected in the next 20 years, according to Sinkuler.

He also noted that many markets lenders have returned to offer debt financing for purchases. He also pointed out that the commercial mortgage-backed securities market is starting to com come back to life, and on the equity investment side, he said that while private equity fundraising is still challenging a lot of equity remains on the sidelines ready to deploy when opportunities materialize.

In light of the positives, Sinkuler said the ongoing recovery in real estate is strongly linked to the global economy. Consequently, the speed of recovering will depend on factors such as economic growth, job creation, consumer confidence and housing starts.

The fact that the residential real estate sector is still weak in the U.S. and in other developed economies, coupled with the increased uncertainty in the Middle East, rising oil and gas prices and the lack of fiscal responsibilities in many government, means that the pace of recovery in the commercial sector may be slowed, according to Sinkuler.