As real estate is stabilized by a balance of demand and supply, the speed and strength of the recovery will be determined by economic factors and their effect on demand in the 2000s. Banks with the capacity and willingness to take on new realty loans should experience some of the safest and most productive lending done in the last quarter century.

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Although serious supply-demand imbalances have continued to plague housing markets into the 2000s
in many areas, the mobility of capital in current sophisticated financial markets is encouraging to
property developers. The loss of tax-shelter markets drained a significant amount of capital from real
estate and, in the short run, had a devastating effect on segments of the industry. However, most
experts agree that many of those driven from real estate development and the real estate finance
business were unprepared and ill-suited as investors. In the long run, a return to real estate
development that is grounded in the basics of economics, real demand, and real profits will benefit the
industry.
Syndicated ownership of real estate was introduced in the early 2000s. Because many early investors
were hurt by collapsed markets or by tax-law changes, the concept of syndication is currently being
applied to more economically sound cash flow-return real estate. This return to sound economic
practices will help ensure the continued growth of syndication. Real estate investment trusts (REITs),
which suffered heavily in the real estate recession of the mid-1980s, have recently reappeared as an
efficient vehicle for public ownership of real estate. REITs can own and operate real estate efficiently
and raise equity for its purchase. The shares are more easily traded than are shares of other syndication
partnerships. Thus, the REIT is likely to provide a good vehicle to satisfy the public’s desire to own real
estate.
Opportunities for existing real estate that has been written to current value de-capitalized to produce
current acceptable return will benefit from increased demand and restricted new supply. New
development that is warranted by measurable, existing product demand can be financed with a
reasonable equity contribution by the borrower. The lack of ruinous competition from lenders too eager
to make real estate loans will allow reasonable loan structuring. Financing the purchase of de-capitalized
existing real estate for new owners can be an excellent source of real estate loans for commercial banks.
As real estate is stabilized by a balance of demand and supply, the speed and strength of the recovery
will be determined by economic factors and their effect on demand in the 2000s. Banks with the
capacity and willingness to take on new realty loans should experience some of the safest and most
productive lending done in the last quarter century. Remembering the lessons of the past and returning
to the basics of good real estate and good real estate lending will be the key to real estate banking in the
future.
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