Blumberg Capital Partners, one of the nation´s leading investment fund managers, today said extensive research by its commercial real estate staff suggests significant price erosion of as much as 15% in 2008 across many markets and 20% in 2009 as debt obligations mature and refinancing options dry up.
"A number of commercial property investors who bought since 2005 are now finding that they overpaid and are overleveraged, with few avenues to refinance," said Philip Blumberg, Chairman and CEO, as well as the firm´s chief investment strategist. "Unfortunately, too many of those buyers had unrealistic expectations: the economy would continue growing unabated, capital flows would remain at unrealistic levels, pricing of commercial office buildings would continue growing, new buyers would continue emerging and credit would always be plentiful."
In anticipation of the price declines, Blumberg said, the majority of the firm´s real–estate Funds have now been liquidated and investment partners bought out so that the firm carried no debt as of Oct. 1. To position itself for next year´s potential bargains, Blumberg said, the firm is now planning a new wave of investments and capital raising efforts.
Blumberg Capital Partners is now exploring investment opportunities in commercial real estate, distressed debt and European REITs, among other areas following its two–year disposition program.
"A byproduct of the price and economic downturns will be unprecedented buying opportunity, but we probably won´t see a bottom in the commercial real estate sector before mid–2009 or 2010," said Blumberg. "We´ve yet to see all of the outstanding commercial property debt hit the market. So, come 2009, the bailout package is ultimately going to have to be larger to adequately cover commercial property loans, or we´re going to face an even more severe economic slump, hurting occupancy rates and accelerating the impact on the sector."
Blumberg founded his firm in 1979, generating investor returns exceeding an average of 15% annually from 1992–2008, for both individual and institutional investors, including overseas investment partners. In spite of the firm´s strong returns, Blumberg´s investment philosophy emphasizes stability and security in an attempt to avoid over–reaching for extra yield at the expense of safety and invested capital. His investment Funds have relied on investors and internally generated cash, utilizing moderate leverage.
"The commercial real estate market is not a straight line. It´s a circle. You need to attempt to gauge where prices are on the evolution of the circle and the direction. That´s what investment is all about. When you lose sight of that principle, you make big mistakes," said Blumberg.
The Funds´ research department is currently looking at undervalued assets in markets that it considers to have potential to come back early. "For right now, that´s registering a "˜no buy´ decision on our part," said Blumberg. "Not because there aren´t good buys out there available - but because if the market continues to go down I don´t want to buy at the 80% down market and have to suffer through the next 20% decrease. We want to buy when we feel more certain that the market has, in fact, bottomed out. And I don´t see that happening until at least next year."
Blumberg Capital Partners´ real estate area is vertically integrated executing acquisitions and dispositions, market research, due diligence, and the management and leasing of its commercial properties, although the firm is exploring opportunities beyond real estate, including media and entertainment. Amid a tightening credit environment and declining asset prices, Blumberg began selling his commercial real estate assets in 2006, eventually closing the sale of the firm´s last office building holding in the spring. The 2006 sale of Blumberg´s Miami office tower set a Florida record at the time for price paid per square foot. The firm´s properties portfolio is well known and highly regarded for its property management team and amenities, including executive suite clubs, conference rooms and fitness centers, saunas, and state of the art technology including wireless Internet access throughout common areas –– marketed and offered under the Blumberg Office Properties brand umbrella.
About Blumberg Capital Partners
The Blumberg Capital Partners group of companies, founded in 1979 by Philip F. Blumberg, offers a full range of real estate investment management services to national, international and regional institutions. The firm´s investment management division, Blumberg Office Properties, the largest institutional real estate investment manager in Florida, manages commingled funds and separate accounts for institutional real estate investors. Since 1992, Blumberg Capital Partners has produced among the strongest returns in the industry through its real estate investment funds. The organization is vertically integrated including asset management, research, leasing and finance divisions. Its real estate asset management division, Blumberg Capital Partners Realty Corporation, has been recognized as one of the top real estate asset managers in the country by Real Estate Forum. For more, visit www.blumbergcapitalpartners.com.
