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From left: John Montaquila '95, principal, M3 Capital Partners; Barry Malkin '88, principal and co-founder, GEM Realty; Jay Weaver '95, principal and co-founder, Walton Street Capital; and Michael Nigro, vice president of RREEF, participate in a panel discussion at the 2007 Real Estate Conference.

Conference keynote: real estate values ‘a return to sanity’

Experts at Kellogg event say sector pausing, not likely to rebound soon

By Ed Finkel

10/22/2007 -

The real estate market is going through a slowdown — not a meltdown — and is in better shape overall than during past retrenchments. But the market won’t rebound until at least 2009, and it may never reach the heights of a couple years ago, said speakers at the Kellogg School’s 2007 Real Estate Conference, held Oct. 17 at the James L. Allen Center.

Keynote speaker John Schreiber, president of Centaur Capital Partners and partner and co-founder of Blackstone Real Estate Advisors, said the industry has gone from low lows of 15 years ago to high highs more recently and is now reaching normalcy.

“I think there’s going to be a return to sanity,” Schreiber said, “a return to disciplined investing.” With office vacancies at an all-time low and the hotel sector booming, he noted, “the fundamentals in our business are pretty darn good.”

While certain real estate sub-sectors are being hit hard — homebuilders and those in the mortgage business — Schreiber reminded attendees that “every mess [also] has its opportunities.”

Homebuilders have been badly impacted, and existing homes are in trouble, too, taking an average of 10 months to sell, agreed Peter Korpacz, executive managing director of Weiser Realty Advisors LLC, who spoke on real estate market trends.

“When you’ve got stuff sitting that long, prices only go in one direction: down,” he said. He added that 2007 might be the first year in the past 30 that housing prices fall on average nationally.

Sectors like hotels, industrial and apartments are faring reasonably well, Korpacz said, and retail is “overall pretty solid.” Pension funds and other cash buyers continue to make purchases, although they’re “testing the fear out there” in making lowball offers of 10 percent or more below listed prices, he said.

Starter homes will continue to sell, and mid-priced homes will sell but for lower prices, while high-end homes will face the most difficulty, said Walter Rebenson, vice president of development for Avalon Bay Communities, who participated in a panel on the residential market’s future. Smart home-builders will focus on multi-family and infill developments, he added.

“We’re running out of land,” said Rebenson. “We’re going to have to build closer to our core employment areas. We’re going to have to re-use existing assets.”

Some developers are choosing to pull properties off the market and rent them for awhile. Equity Residential did so with properties in Washington, D.C., and southeast Florida that sold slowly and saw numerous defaults on contracts, probably many of those by investors, said Mark Goldstein, senior vice president and another conference panelist.

“Why is this happening? It’s consumer confidence. The media is doing a great job hyping this,” he said. “We’re very patient. We have to accept lower margins.”

Joseph Freed and Associates had similar difficulties in Denver and St. Louis on which many would-be purchasers walked away from their earnest money, said David Kirshenbaum ’92, chief operating officer and another panelist.

“I don’t see a turnaround in 2007 and probably not in 2008,” he said. “Existing homes need to get out of their doldrums. People need to be patient, smart and work around the edges.”