M&M: Half of investors plan to increase holdings

ENCINO, Calif. - Marcus & Millichap Real Estate Investment Services has released the results of the industry’s largest investor survey in which participants revealed the lowest confidence level observed since the survey was started five years ago.

Of the 1,129 private and institutional real estate investors surveyed from across the United States, 51% of the investors plan to increase commercial real estate allocations in 2009, compared to 62% a year ago and a high of 74% in 2005.

“Despite the significant drop-off in acquisition plans from the peak in 2005, it is interesting to observe that slightly more than half of investors are still planning to increase their commercial real estate holdings,” says Harvey E. Green, president and chief executive officer of Marcus & Millichap. “This speaks to the opportunity that many investors expect as prices adjust.”

Indicating a lack of panic in the market, only 11% plan to reduce their real estate portfolios in 2009, according to the survey results.

The majority of investors polled expect commercial real estate values to decline further in 2009, with 67% expecting price corrections of at least 10% on average, and 32% predicting price declines of 15% or more.

“Prices are adjusting; however, there is a wide gap between top-tier properties in primary markets and lower-quality assets in secondary and tertiary locations,” according to Hessam Nadji, managing director, research services for Marcus & Millichap.

Other highlights of this year’s survey include:

- The top concerns of commercial real estate investors are availability of financing (60%), creditworthiness of tenants (29%) and rising vacancy rates (28%).

- Overall, 22% of investors believe this is the right time to buy, 64% believe it is the right time to hold, and 14% believe this is the right time to sell commercial real estate.

- 59% of respondents do not need to refinance any part of their portfolios in 2009, and only 12% indicate the need to refinance 20% or more of their holdings.

- 59% of respondents expect all-in mortgage rates to be higher a year from now, and 74% believe financing will be as difficult or more difficult to obtain.

- Investors are most bullish on apartments, with 34% indicating now is the time to buy and 48% expect apartment rents to grow in 2009. This was followed by 23% who believe this is the right time to buy land, and 16% for buying industrial. 14% of investors believe this is the right time to buy CBD office product, and 11% believe this is the right time to buy suburban office. Retail scored the lowest on the acquisition scale with 5% believing this is the right time to buy mall properties.

- 49% of respondents indicated that their acquisitions in the past year were less than they had planned, primarily because prices had not adjusted enough, lack of available financing and uncertainty with future values.

- Respondents expect a slow economic rebound (31% expect the economy to be weaker in 12 months, 30% expect it to be the same and 33% expect it to be stronger) and anticipate softer real estate fundamentals (for most property types, a larger percentage expect a decrease in effective rents and property values than an increase).

- 60% of respondents expect a full recovery of the CMBS market eventually but it could take at least two years.

- Respondents to our survey have been in the industry an average 19 years and have an average $32 million in commercial real estate assets. In response to the turmoil in the financial markets, an additional 352 commercial real estate professionals were surveyed between Sept. 15 and 19, 2008, and an additional 562 commercial real estate professionals were surveyed between Oct. 6 and 10.

- 60% of investors expect a change with capital gains tax as result of change in administration, while 49% expect increase government oversight of financial markets.