Another Housing Bubbletin <-- Ok, I'm copyrighting that word! Bruce

Lenders Now Assuming Greater Risk, says E&Y Speaker
September 13, 2004
By J.W. Elphinstone, Assistant Editor

Real estate is increasingly taking a "front and center" position in the economy, said Dale Anne Reiss, global director of real estate, hospitality and construction at Ernst & Young L.L.P., in her opening keynote address today at Commercial Property News' 2004 Net Lease Summit."Money is getting poured into real estate because there's no other good alternative," Reiss said. "It's an income-oriented investment."

Consumer confidence remains fairly high despite gas prices, weak labor and the war on terror, and investing in real estate, both commercial and residential, has become the status quo.

"Capital investments are at a five-year high and foreign investors are growing because the returns compare favorably to investments in their own backyard."

On the residential side, existing home sales have been very strong, though higher prices in building materials have slowed the new home business. And although a housing bubble exists, it will likely become flat rather than deflate dramatically like the dot-com bust, according to Reiss. (A lot of Californians hope she's right! -Bruce)


But U.S. lenders should watch the bubble more closely, Reiss warned.

Because of the competition that low interest rates have created, lenders have been forced to take on more risk, especially with residential and commercial real estate loans. "These new bankers in place don't remember the late '80s and the early '90s when real estate suffered."

Reiss touched on other trends in the sector, including the rise of global REIT activity and the good reception that private REITs are experiencing in the marketplace. Office occupancy is heading up as corporations seek to expand. And the net lease market remains competitive as a result of M&A and LBO activity.

Reiss predicted that several factors will impact the industry in the near future. Accounting is becoming a key issue because of the expense involved in implementing FIN 46. The off-shoring of service jobs and the need for 24/7 operations will affect the demand for office space. And in hospitality, toxic mold will become a hot topic because of the active hurricane season.