As The Roundtable's Q2 2009 Sentiment Survey shows, senior executives believe asset values continue to slide as access to capital remains constricted. Yet, when asked to compare today's market conditions versus those they expect in one year, a majority of respondents say conditions will be "somewhat better." This view is reflected by a slight uptick in the Overall Q2 2009 Sentiment Index, which registers at 41, up from last quarter's score of 38 and its low point of 33 six months ago.
The Roundtable's Overall Sentiment Index is measured on a scale of 1 to 100 and is calculated based on the average of Future and Current Indexes. For example, to reach an Overall Index of 100, all survey respondents would have to answer that conditions are "much better" today compared to one year ago, and will also be "much better" 12 months from now.
A significant majority of the 120+ survey respondents continue to report eroding market conditions, with 83 percent saying real estate markets are worse today than one year ago. But when asked their perspective on today's market compared to one year from now, 59 percent of respondents said they expected conditions would be better. One executive offered a small measure of optimism for the future, saying, "I believe stock market pricing will get better, but the private market will get worse... The public markets are a leading indicator and they seem to have found a floor."
Respondents to the Q2 survey also report that current asset values continue to slide and expect little improvement in pricing in the next 12 months. Ninety-nine percent of executives said real estate values were lower than one year ago, while only 24 percent or respondents expect values to be somewhat higher one year from now. One executive noted, "Asset pricing is going down and down. There is some overreaction in the system, though we won't see a return to 2000-2007 pricing for a long time."
Nearly all the executives surveyed said access to capital remains limited as debt & equity markets have tightened, although conditions have improved slightly. Eighty-eight percent of respondents think debt availability has deteriorated from a year ago, yet 69 percent of respondents think debt capital availability will improve in the next year. Eighty-six percent of respondents think equity financing has deteriorated from a year ago, yet 68 percent of respondents think it will improve in the next year. A survey respondent observed that "There is access to both equity and debt, but they're expensive. Banks are being very selective and are trying to pick survivors." Expectations about the availability of capital one year from now are up for both debt and equity, compared to last quarter's survey findings.
DeBoer and The Roundtable have been championing a plan to attack the credit crunch afflicting the markets. Among several suggested reforms, The Roundtable's five-point plan calls for the establishment of a new credit facility for commercial real estate debt by appropriately expanding the Term Asset-Backed Securities Loan Facility (TALF) to accommodate the dynamics of commercial real estate mortgage loan structures.
Additionally, the Treasury Department this month released new guidance for potential investors in the legacy securities portion of the Public Private Investment Program (PPIP). The program aims to help banks clear their balance sheets of troubled or illiquid loans and securities and, thus, help restore their ability to lend again to households and businesses. The Legacy Securities Program is aimed at thawing frozen secondary markets, including the market for commercial mortgage-backed securities (CMBS).
Roundtable President and CEO Jeff DeBoer called the PPIP program an "innovative plan" for addressing legacy assets congesting the U.S. financial system, but said investors "will need more details about how the process will actually work, along with clarification that future profits, if any exist, will not be retroactively undermined."
