Report: RE market will weather storm.

As the nation's economy sinks into recession, U.S. commercial real estate markets appear relatively well positioned to weather the downturn according to Emerging Trends in Real Estate[R] 2002, the annual survey of leading real estate experts.

The report predicts investment returns for 2002 should register in the 7% to 9% range, absent an extended economic decline, property returns in the hotel and retail sectors, however, could be hit hard by travel falloff and consumer retrenchment. In addition the nation's leading 24-hour office markets will face, softening demand and deteriorating big city fiscal outlooks. Apartment and industrial markets should hold up better.

Emerging Trends in Real Estate, the 62-page annual forecast published by PricewaterhouseCoopers and Lend Lease Real Estate Investments, makes these projections in its just released 2002 report, the first major industry outlook completed since the Sept. 11 terrorist attacks.

The report states, "2002 should mark the nadir of a sudden correction in U.S. real estate markets." But, "a potent combination of public. market discipline, low interest rates and controlled supply have kept real estate markets in relative equilibrium -- ready to withstand reduced demand from the expected recessionary fallout."

Key findings of the report include:

* The real estate markets will suffer through a two-stage downturn before hitting bottom, driven by declining demand, not oversupply. Stage one's impact, generally absorbed by fall 2001, was driven by the record-level of sublease office space in "tech wreck" markets. Stage two -- a consequence of recession amplified by Sept. 11 -- will be felt into 2002 across all markets and will determine the extent of real estate's slump. Given real estate's relative balance, the report expects the decline to be more of a "dip" than bust. Recovery will be modest, limiting future upside, especially for investors seeking more opportunistic returns.

* The "Big Five" 24-hour cities -- New York, Washington, D.C., Boston, Chicago and San Francisco -- remain America's top markets, but their prospects have peaked. The souring economy, lack of federal support, failing public schools, and chronic affordable housing shortages increase risk for investors in the near term. in addition, the fear factor related to the recent terrorist attacks could cast a temporary shadow on big city life. Southern California, including the suburban expanse between Los Angeles and San Diego, also ranks high on the survey together with the 24-hour cities.

* The top property types for investment in 2002 will be multifamily, industrial and community shopping centers -- all offering steady cashflows. Office in battered high-tech markets and 24-hour CBDs, as well as well-leased suburban properties are touted as acquisition "best, bets" in the market trough.

* Disciplined capital markets have helped maintain equilibrium while fostering liquidity. As a result, most owners of real estate are well capitalized and most lenders are protected entering the downturn 2002 will be an important year for the CMBS market as bond holders face rising delinquency and defaults. It promises also to be a critical year for pension funds as investment performance at cyclical bottom could determine whether plan sponsors raise future allocations from current low levels.

* The impact of technology will continue to be profound on the real estate market. In particular, the flow and transparency of property information has improved decision-making and helped stabilize markets.

Now in its 23rd year, Emerging Trends in Real Estate[R] is published by PricewaterhouseCoopers and Lend Lease Real Estate Investments. It is based on indepth interviews of more than 150 leading real estate authorities, conducted by PricewaterhouseCoopers. Lend Lease writes the report. Both companies provide additional research and executive insights.

Copies of Emerging Trends in Real Estate[R] 2002 are available for $95 by emailing [e-mail] or [e-mail]. Alternatively you may, call Susan Tromp, 631-234-5143 or Bonnie White, 212-554-4168.