Global real estate to stay a wild ride: Pralle

By Ilaina Jonas

NEW YORK (Reuters) - For commercial real estate investors, Brazil is a dream and Spain is a nightmare, Michael Pralle, president of real estate private equity firm J.E. Robert Cos, said on Wednesday.

"I'd avoid Spain and Italy right now, and be patient in the United States," Pralle said at the Reuters Global Real Estate Summit in New York. "It's going to get worse before it gets better."

The credit crunch has walloped the U.S. commercial real estate market as borrowing costs soared and lenders have reduced the amounts they will loan. But in developing countries, a dearth of modern office and apartment buildings and shopping centers offers investors lucrative opportunities.

"The U.S. market is pretty tough right now," said Pralle, who was CEO of GE Real Estate, a division of General Electric Co (GE.N: Quote, Profile, Research, Stock Buzz), until last year.

Eight months ago he became president and chief operating office of J.E. Robert. The private equity company, one of the world's largest commercial real estate private equity firms, creates funds that invest in real estate in the United States, Europe, Latin American and Russia. It also manages real estate investment trust (REIT) JER Investors Trust JRT.N.

The firm plans to raise $3 billion to $5 billion a year from pension and sovereign wealth funds, endowments and wealthy individuals over the next several years to expand into emerging markets, Pralle said.

About 70 percent of its investments currently are in the United States, but it expects that to drop to 50 percent within three years, he said.

Earlier this week, Pralle attended a meeting organized by real estate tycoon Sam Zell and Wharton professor Peter Linneman. The 50 to 60 attendees included the heads of real estate investment units at Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz), Blackstone Group LP (BX.N: Quote, Profile, Research, Stock Buzz) and Goldman Sachs Group Inc's (GS.N: Quote, Profile, Research, Stock Buzz), as well heads of many REITs, Pralle said.

"It was clearly the most negative sentiment that I've ever seen at a real estate meeting," he said."

U.S. commercial real estate prices are off about 5 percent from this cycle's peak last year, and many experts believe that by the time it's all over, the plunge will be 15 to 20 percent.

Still, there is very little distress in commercial real estate as sellers refuse to do deals because they don't need to do them. Pralle expects that in about six to 12 months, many property owners will be forced to sell as they find themselves unable to adequately refinance loans when they come due.

"What will drive the distress in real estate is really going to be the credit markets," he said. "It's not going to be the fundamental oversupply or lack of demand for commercial real estate. It will simply be that people can't get same financing that they had before."

U.S. commercial banks also are looking to rid themselves of questionable real estate loans, which may soon be buying opportunities for investors.

"There's a lot of toxic loans on their balance sheets, and eventually they'll be wanting to sell those, and we'll be there as a buyer," he said.

Office buildings in Orange County, California, may offer good buys as many sellers will be forced to sell because their tenants, many of whom were mortgage brokerage firms, have closed due to the housing collapse.  Continued...