Mr. AuBuchon: I think so, but the wait is going to be pretty extended. We don't expect fundamentals to turn positive until the economy gets better, of course, and the issue with the real estate sector is that it typically lags. Most of the property types have long-term leases and it takes a while for the slowdown to impact the real estate markets. Also, once the economic growth returns, it's going to take longer for the real estate companies to enjoy that benefit as well. Right now, we believe that office/industrial real estate fundamentals nationally will probably bottom in the first half of 2011, which means there will be at least a two-year wait before the REIT sector enjoys positive momentum in fundamentals again.
TWST: Why that long?
Mr. AuBuchon: Again, the demand for real estate is driven by employment
primarily, and typically the markets don't respond or get to levels where
they're considered healthy until at least a year into an economic recovery, when
there is positive job growth. Given the dramatic job losses that we've
experienced over the last several years, touching 7 million jobs lost now, this
recession is likely to be much longer than average.
We think the new cycle is going to start in early 2011, assuming everything that
we know now, but clearly there could be additional downside if we go through a
double-dip recession.
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