With credit easing and property values stabilizing, real estate companies are cautiously optimistic. Many challenges remain, yet there are opportunities for those able to execute strategies based on realistic views of the future.
In the current environment, real estate companies still have to manage greater-than-normal risks concerning valuations. More generally, the creation of ever-larger real estate businesses has increased the danger of governance and risk management breakdowns.
Real estate values vary around the world, with different geographies recovering at different paces. Contrasting fortunes are creating both challenges and new openings. Institutional investors remain committed to the asset class and to those real estate vehicles with convincing strategies.
With profitability under pressure, thought needs to be given to how performance can be appropriately measured and retaining the best people may entail creating a new set of benchmarks.
Investors are becoming more demanding. They want greater consistency and transparency in valuation practices. Meanwhile, International Financial Reporting Standards are evolving. Real estate companies need to be aware of best practice.
Real estate funds may be caught up in increased regulation in Europe and the US. In Europe, they are within the scope of the Alternative Investment Fund Managers Directive. Firms need to understand their compliance requirements.
Faced with greater demands for transparency and a need to mitigate the operational risks revealed by the credit crisis, real estate asset managers are under pressure to review their operating models.