By Kevin Chiu
Bank lending should improve in commercial real estate in the next year, positioning U.S. investment property to deliver attractive returns once again, according to a leading independent non-profit real estate and education organization.
Stephen Blank, Urban Land Institute’s fellow for real estate finance says that mortgage financing should finally begin to show improvement in 2011 in a more limited form in his research paper, “An Era of Less.”
“This reconstituted marketplace should reposition real estate as an attractive yield-producing asset class for those investors who recalibrate investment expectations on a long-term horizon,” said Blank, who expects conditions in commercial real estate to improve moderately over the next year. However, the senior fellow does not expect real estate to deliver double-digit annual returns any time soon.
Performance expectations should also be influenced by changing consumer preferences over living and working environments, Blank says as homeowners adjust to new living standards and ways of life in a rapidly changing economy. “Coming years will focus on readapting real estate to people’s revised goals, priorities and expectations,” said Blank. “We’ll be working longer, saving more, and looking for greater efficiencies in how we live and work.”
Changes are developing to re-shape a new era of urban economics in cities that will compete in order to be successful in the 21st century. New trends are expected to re-form the way communities succeed regardless of which political party is in power or how quickly the nation recovers from economic hard times.
In his essay “An Era of Less,” Blank discusses the smaller bank lending industry, which has now seen more than 125 banks closed in 2010 alone by the FDIC as a result of making bad mortgages. The institute’s finance expert expects bank profits to be lower for a number of years with limited new commercial and residential development, less credit availability and reduced profits.
A colleague of Blanks at the institute, John McIlwain, ULI’s senior resident fellow for housing, says the U.S. residential market will be forever transformed by steady, but slower population growth and diversity with nearly half the growth among immigrants and ethnic minorities.
“As the housing markets recover, demand will increase significantly for smaller, greener homes, more rental than in the past, and more compact, walkable urban centers in the suburbs as well as in many, but not all, central cities,” said Mcllwain. “The biggest challenge will be finding suitable affordable locations. There will be metro areas that will attract the brightest and best, and will continue to grow and provide opportunities for development. Within these metro areas, some local markets will thrive. These are the compact, walkable communities, which are finding increasing demand as people look to new ways to define livability.”