New York, NY (PRWEB) March 26, 2012
While prime markets such as New York and other U.S. gateway cities have already started to experience the much anticipated recovery, the same cannot be said for secondary markets, such as inland U.S. cities and major submarkets of the gateway cities. As a result, the market for assets in these secondary markets is not likely to fully recover for another several years, say real estate experts at FTI Consulting, Inc.
Specifically, the failure of the recovery to gain widespread momentum in 2011 combined with the unpredictability of the financial markets has caused uncertainty in those secondary commercial real estate markets and even in some primary markets, like Chicago and Atlanta, said Marc R. Shapiro, a managing director and head of real estate valuation services within the Real Estate Solutions Group at FTI Consulting. While the ongoing recovery in many primary markets is expected to last a few years, expansion, which is typically characterized by tight market conditions that can drive interest in secondary markets, is not anticipated for at least a couple of years.
With that in mind, investors and owners in these markets need to adjust their expectations about what their assets are worth today. There is a definite disconnect between the property values of these nonprime assets dating back five or six years and the reality of todays values, said Michael P. Hedden, a managing director of valuation services within the Real Estate Solutions Group at FTI Consulting.
There is no question that the ails of the housing market and its subsequent drag on the economy overall still permeates other issues relative to real estate, including the commercial, industrial, hospitality and retail sectors. As a result, there is still a certain degree of pain these owners are going to experience over the next few years until the recovery we have all been waiting for becomes a more widespread reality, Hedden said.
According to FTI, the only way for these owners to derive added value from their assets once again will be for the GDP to grow at a rate greater than 3%, but that is not likely to happen until 2015. As a result, the commercial real estate sector has seen no real sales velocity to speak of around these nonprime assets, and finding sources of capital has become extremely challenging in the wake of the financial crisis.
Those owners who want to try to work around this economic malaise are exploring merger opportunities with other property owners in order to be proactive, Shapiro indicated. Their goal is to create a synergistic effect through diversity and critical mass.
FTIs Real Estate Solutions practice is actively engaged in those discussions that are already starting to take place among property owners who are looking to join forces with other owners in 2012 and 2013, whose property holdings complement their own so that they can recapitalize and form a stronger organization.
I think we are going to see a Darwinism of sorts take place within the commercial real estate sector, where those entities that have access to capital will emerge as the leaders, noted Hedden. This will be evidenced by industry defining mergers such as the kind we saw in the days of the Mack and Cali, and SL Green and Reckson deals.
About FTI Consulting
FTI Consulting, Inc. is a global business advisory firm dedicated to helping organizations protect and enhance enterprise value in an increasingly complex legal, regulatory and economic environment. With more than 3,800 employees located in 24 countries, FTI Consulting professionals work closely with clients to anticipate, illuminate and overcome complex business challenges in areas such as investigations, litigation, mergers and acquisitions, regulatory issues, reputation management, strategic communications and restructuring. The company generated $ 1.56 billion in revenues during fiscal year 2011. More information can be found at http://www.fticonsulting.com.
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Economic Conditions In Atlanta
