I found this interesting analysis on how a real estate investment company, Colorado Santa Fe Real Estate, is looking to the future of real estate. They are very pessimistic and make some very strong arguments on how and why the real estate market will have a severe dip in the next couple of years and then a rebound from the bottom of the market.
Here is an excerpt from their most recent report on the market.
COLORADO SANTA FE’S ACTION PLAN
There is virtually no upside left, and instead, tremendous downside risk. There will be a significant “flight to quality” by lenders and investors. The risk of remaining heavily invested in real estate is extremely high. Values are far more likely to fall precipitously than to rise modestly. Most real estate should therefore be sold and the extraordinary profits harvested. If our projections are wrong, we have avoided risk and locked in small returns from holding cash. If our projections are correct, we will need cash in 2007 and 2008 for the considerable buying opportunities that may be available at the bottom of the cycle.
2006 and 2007: Sell most existing properties:
• Quickly liquidate condo conversions ($75 million)
• Liquidate most retail and industrial properties ($200 million)
• Short stocks of retail REITs, homebuilders, real estate companies, mortgage insurance companies, and suppliers (construction, copper).2008-2010: Return to Real Estate (at Cycle Bottom):
• Raise equity pool of $250 million and buy distressed property on a massive scale ($1 billion). via Look Out Below.
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