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1987 Year of Shaking Out in Real Estate Industry

October 15, 1986

CHICAGO (AP) _ There will be ″very few cranes looming on the horizons″ during the coming year, according to a real estate investment survey that found single-family homes and industrial property among bright spots for 1987.

Among the hardest-hit segments of the industry next year will be office and hotel projects, according to ″Emerging Trends in Real Estate,″ a survey published annually since 1979.

″There will be the odd project here and there, but you are going to see very few cranes looming on the horizons of our cities and suburbs for the foreseeable future,″ George Puskar, president of Equitable Real Estate Investment Management Inc., said at a news conference Tuesday.

Equitable, the nation’s largest real estate investor and sponsor of the survey for the second consecutive year, predicts that hotel and office projects ″will come to a dramatic halt.″

Leanne Lachman, president of Real Estate Research Corp., and co-author, with Richard Kateley, of ″Emerging Trends,″ said those segments, already staggering from low occupancy rates and overbuilding because of the favorable tax policies of the past, will suffer much of the decline in the industry.

But she said even though the more than 100 real estate investors, lenders, syndicators and developers interviewed for the survey expected a dramatic decrease in such construction, most thought someone else would do the cutting back.

″Real estate professionals are chronic optimists who always expect their own projects to flourish,″ she said.

Most surveyed thought tax overhaul would prove helpful as a whole, but saw chaos for at least two years.

″We think 1987 will be a time of sorting out, with a lot of experimentation and new products to attract investors,″ said Lachman. ″We think next year is an important time to be prudent.″

The survey predicted that real estate values would remain steady, with single-family housing the best potential investment for 1987, followed by the market for industrial space and retail projects, most notably shopping strips, centers and malls.

It also concluded that between 3 percent and 4 percent of commercial real estate already is in ″genuine difficulty,″ and among investment-grade properties, the figure climbs to 6 percent.

″If we’d used foreclosure (proceedings as the standard) the number would be much lower,″ she said. ″But all of the properties included have missed at least one mortgage payment.″

The so-called ″trouble rate″ of about 4 percent is four times higher than the 1 percent considered by the industry as normal, said Lachman. But she said the figure is still ″well below the amount imagined by alarmists.″

Other highlights of the survey:

-Apartment rents will increase 2 percent to 3 percent above inflation, which interviewees pegged at 3 percent to 4 percent for the near term.

-Japanese investment in U.S. real estate could reach $3 billion by the end of 1986 and could double next year, but Lachman said Canadians and Western Europeans still represented the largest foreign investors.

-Washington was selected as the best city in which to invest in real estate, followed by Boston, Los Angeles, New York and San Francisco.

-Houston, Dallas and Denver and several other ″oil-patch cities″ were considered the least bullish places to invest in real estate.

-Farmland prices will bottom out in early 1987, and next year will be a good time to purchase top-quality acreage.

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