Turn on the television; open any paper, and it’s clear the American housing market has been in a freefall for more than a year. For the most part, the commercial sectors have followed suit.

 

In its annual Emerging Trends in Real Estate report for 2010, the Urban Land Institute (ULI) paints a bleak picture moving forward this year. A joint venture of ULI and PricewaterhouseCoopers, the 2010 report (www.uli.org) leads off as follows, “After more than a year spent in suspended animation lagging already shattered housing markets, the commercial real estate industry hits bottom in 2010, suffering a surge of painful writedowns, defaults, and workouts.”

 

Now in its 31^st year, the 2010 report was crafted based on survey or interview responses from more than 900 individuals affiliated with real estate or allied services. Surveys indicated 2010 would be “the worst time for investors to sell properties in the report’s 30-year history.” Conversely, the report highlighted a “much improving environment” for buying … if cash is readily available. Debt markets are expected to continue to be severely compromised, although some rebound in lending is predicted by the end of the year … albeit with much stricter underwriting standards.

 

Still, ULI experts noted, cash is king. The report stated, “Liquid investors rule the real estate world in coming years, enjoying pricing power. Real estate investment trusts (REITs), equity funds, and high-net-worth individuals with dry powder will reenter at perceived market bottom, focusing on vulture deals for trophy properties in top markets, shoring up troubled borrowers who own prime assets in return for big equity stakes, and purchasing troubled loan portfolios at cents on the dollar. “

 

Although the ‘doom and gloom’ attitude is pervasive in the report, a couple of slightly brighter spots shine through. One of those is in the healthcare sector. First, report respondents believe healthcare is one of a handful of commercial sectors that will help spur the nation’s economic recovery and begin to drive tenant demand in commercial spaces. In terms of real estate investment, the report broadly dismisses niche sectors during the current inhospitable economic environment with the notable exceptions of medical office space, housing for seniors, student housing and addressing infrastructure needs.

 

The steadily aging population is credited with shoring up both the need for additional medical office space and senior housing options. The ULI report noted, “Demand will grow for more physician, therapist and hospital-related facilities, especially in gateway cities and regions where the elderly settle — the Southeast and Southwest in particular.” As for senior housing, the report points out the “over 60” population will more than double over the next 30 years translating into increased demand for a spectrum of senior housing services and opportunities for investors and developers.

 

Dan Dolsen, managing director of CB Richard Ellis Healthcare Services Group, oversees the company’s healthcare development and management services from his office in Southfield, Mich. CBRE is a global leader in commercial real estate with offices throughout the United States and in more than 60 countries internationally. In the healthcare arena, CBRE focuses on three areas: facilities management, project management and real estate strategy.

 

“In general, healthcare real estate has been stronger than other sectors,” Dolsen concurred, adding there has been more activity in terms of buying and selling and that values have tended to hold steadier than other niche markets.

 

That said, Dolsen noted there had definitely been a decline in overall activity in the past year. However, he continued, he believes much of the decline has been tied to the capital markets. Dolsen said that in a number of cases, he had seen fundamentally sound deals not come to fruition because of the inaccessibility of funding.

 

“As we go into 2010, we think we’ll see some freeing up of capital so we expect to see there will be a little more activity,” he added. “The source of capital is most likely not going to come from traditional debt markets. It’s going to come out of REITS.”

 

Dolsen said there has been and will continue to be a strong interest in investing in ‘on campus’ assets, such as medical office buildings (MOB), parking garages and ambulatory specialty centers affiliated with a hospital system. However, he said that in today’s climate, it is more difficult to launch speculative MOB projects. “They will need to have strong hospital affiliation and strong pre-leasing done,” he said of the chances of getting such a stand-alone development off the ground right now. Dolsen also said that some of the MOB hesitation comes from physicians, themselves, who are concerned about declining volumes, the payer mix and the uncertainty around healthcare reform.

 

“They’re looking much more in terms of the current business they have and ‘how do I make that more cost effective,’ rather than ‘where do we grow next,’” he said of today’s mood among healthcare professionals. “We’re trying to get clients to think about both.”

 

For those who are interested in buying, the time is right. Dolsen said because markets are depressed, opportunities exist. Not only are property values down, but construction costs are also lower in many parts of the country than they were a couple of years ago.

 

No matter how ‘good’ the deal, though, Dolsen warned that it must fit with the long range plans. “We’ll look at the good values, but we try to take a very disciplined approach to it,” he said of acting on behalf of clients. “We hold it up to the light of the strategic plan, and if it makes sense strategically, we’ll jump on it.” However, he cautioned, no one should be buying just for the sake of buying.