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Survey predicts 'bullish' commercial market.

Expect a "bullish" commercial real estate market over the next year with public-to-private consolidation deals to continue, according to a survey conducted by global law firm DLA Piper US LLP, Baltimore.

DLA Piper's State of the Market 2007 real estate survey, which measured the attitudes and perspectives of 274 top executives within the commercial real estate industry, concluded that "abundant capital flows from both private-equity funds and traditional lending sources have spurred an insatiable demand for real estate assets."

The survey noted that 78 percent of respondents described their 12-month outlook for the U.S. commercial real estate industry as "bullish," up from 43 percent in 2005. When asked the primary reason for their confidence, 48 percent cited the continued growth of the U.S. economy.

Building upon the momentum generated by the historic number of transactions that occurred in 2006, nine out of 10 survey respondents said they expect the public-to-private merger-and-acquisition (M & A) trend will continue in the coming year, according to Jay Epstien, chair of DLA Piper's U.S. Real Estate Practice Group.

"The growing influence of private-equity capital in the real estate markets is unmistakable, yet the overwhelming spike in optimism throughout the industry is surprising at a time when some industry experts fear that pricing may have peaked and there is also new evidence of a slowdown in the U.S. economy," said Epstien.

Respondents cited a confluence of key factors driving the record number of public-to-private deals, led by private-equity funds willing to pay a premium for real estate assets, cheap rates in the debt market and the public markets undervaluing REITs.

"It is also interesting to note that the majority of executives believe the public-to-private consolidation trend, which has been dominated by many of the largest players in the industry, will create an abundance of opportunities for the smaller players, not just the large investors," explained Epstien.

The DLA Piper survey also concluded the following:

* Despite the greatest cap-rate compression in the history of the U.S. commercial real estate industry, 10 percent of respondents believe cap rates will dip further into historic lows while 72 percent do not expect any significant changes.

* Perhaps as a direct consequence of the slowdown in the single-family residential housing market and the subprime lending situation, multifamily continues to be the most attractive real estate investment opportunity in the coming year as 26 percent of survey respondents chose multifamily over other investment options.

* Investor interest in Eastern Europe and Russia was lower than expected, at a time when many U.S. investors are active in those markets.
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Title Annotation:Commercial
Publication:Mortgage Banking
Article Type:Survey
Geographic Code:1USA
Date:Jul 1, 2007
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