Residential real estate downturn could extend to commercial property market next year, says expert at University of Southern California

Mathew Kearney

Mathew Kearney

LOS ANGELES , December 5, 2007 (press release) – The residential real estate industry could drag the commercial property sector into a downturn in 2008, and real estate investors, developers and service companies need to start preparing now for what could be a tougher business environment.

“No one knows what will happen to the economy, the credit markets, or oil prices next year,” said Stan Ross, chair of the University of Southern California Lusk Center for Real Estate. “But real estate companies shouldn’t wait to see if a storm will hit, or how intense it will be,” he added. “They need to start their contingency planning today.”

Ross said companies can begin by assessing the current health of their organizations. Then they can consider how to maintain the stability of their companies in 2009 under different risk scenarios such as the economy’s sliding into a recession or property markets weakening further.

A health checkup includes a diagnostic of the organization itself and analysis of the external forces including the economy, business environment and especially local market conditions. Ross suggested that companies conduct ongoing market assessments and evaluate the impact of market changes on an organization’s health.
Key areas to consider are:

INTERNAL
-- Development pipeline
-- Land inventory: land owned or under option
-- Proposed developments
-- Development deals under negotiation
-- Deals closed but not yet under development
-- Development projects in the pipeline
-- Assets
-- Existing inventory: location, type, acreage, number of lots, square footage, etc.
-- Market demand by location
-- Status of home sales contracts and cancellations or commercial lease renewals
-- Income
-- Property sales
-- Rental income
-- Other income streams
-- Costs
-- Land acquisition and development costs
-- Operating expenses 
-- Liquidity
-- Cash on hand
-- Access to capital (from lenders, governmental bodies, outside investors)
-- Financing
-- Debt outstanding
-- Debt covenants
-- Debt service
-- Financing costs
 
EXTERNAL INDICATORS
-- Economic
-- Business
-- Property market
-- Regulatory
-- Consumer confidence

“By having a clear understanding of their organizations – projects, cash flows, costs, liquidity and financing – and the external economic, business, and property market environment, developers and investors will be better prepared for whatever happens in 2008,” Ross said. Companies may decide not to exercise options to acquire land, or decide to sell selected assets in their portfolios, put in new cost controls or restructure their debt or take other steps to hedge against such risks as a recession or property market downturn. In any event, Ross recommended early communication with lenders as these strategic decisions are being considered. “The point is, companies need to take the initiative and not let themselves be overtaken by events,” Ross noted.

For more on how real estate companies can prepare for challenges in 2008, see:
http://www.usc.edu/schools/sppd/lusk/pressroom/item.php?id=1049

BW-image© 2024 Business Wire, Inc., All rights reserved.

Share:

About Us

We deliver market news & information relevant to your business.

We monitor all your market drivers.

We aggregate, curate, filter and map your specific needs.

We deliver the right information to the right person at the right time.

Our Contacts

1990 S Bundy Dr. Suite #380,
Los Angeles, CA 90025

+1 (310) 553 0008

About Cookies On This Site

We collect data, including through use of cookies and similar technology ("cookies") that enchance the online experience. By clicking "I agree", you agree to our cookies, agree to bound by our Terms of Use, and acknowledge our Privacy Policy. For more information on our data practices and how to exercise your privacy rights, please see our Privacy Policy.