Long Slide in Real Estate May Be Coming to End
NEW YORK (AP) _ The long, brutal slide in the nation's real estate market, a key culprit in banks and insurance companies' financial turmoil, may be coming to an end, industry analysts say.
Some major firms report a stirring in investor interest in commercial real estate deals. Housing prices nationwide are showing slight gains and brokers are reporting healthy interest in the Southwest and Midwest.
Most significant for banks and insurance companies, however, is the apparent halt in the steep slide in commercial real estate rents.
"I'm prepared to believe that in many of these cities, rents have fallen as low as they are going to fall. But I'm not prepared to say the problem is going to go away," said Karl Case, an economist specializing in real estate with the Boston Federal Reserve Bank.
Statistics are hard to come by, but real estate analysts suggest rents may have been cut in half since the market's peak in the mid-1980s. Case said that decline in value may not be reflected in the real estate holdings of insurance companies and pension funds.
Because the property values may be sharply lower than the original purchase price, lenders and investors may have to wait a considerable time for property prices to rise again "to restore the value that we've lost,"
But clearly there are encouraging developments in the real estate market:
Citicorp sold Banc One Center in Indianapolis for $115 million earlier this year, a sign that banks can move foreclosed and distressed properties off their books. Also, NationsBank said it would try to sell $850 million in bad loans and foreclosed real estate to investors. The cost of upkeep and taxes on foreclosed real estate drains many lenders' balance sheets.
The Resolution Trust Corp. is selling bonds backed by revenues from distressed commercial mortgages. The bonds help bring badly needed cash into the market.
A survey by Price Waterhouse Real Estate Group in California shows pension funds and other non-traditional investors are showing growing interest in commercial real estate deals. Smaller groups of investors, dubbed "bottom fishers" and "vulture funds," are roaming the market for deals. One of the most prominent is the Zell-Merrill Lynch real Estate Opportunity Partners L.P., which bought the Indianapolis office tower from Citicorp.
"I'm absolutely convinced we are in much better shape today than where we were a year ago when there was absolutely no liquidity in the market," said Case. …