Real estate execs see merger impediments for now

By Jonathan Keehner

NEW YORK (Reuters) - Uncertain demand and lender wariness may hamper real estate dealmaking despite consolidation potential in several corners of the market.

Such were the sentiments expressed this week at the Reuters Real Estate Summit in New York, where executives from several businesses gave their outlook on merger activity.

"Some recent purchasers may be overextended and have taken on a little more than they can stay on top of," Howard Grufferman, vice chairman of commercial real estate advisory firm Grubb & Ellis, told the summit.

Real estate investors have been challenged by a tightening market for commercial mortgage-backed securities, a type of financing increasingly used in property deals. Wariness in underwriting these securities has followed concerns by ratings agencies over lax real estate lending practices -- potentially leaving investors struggling to finance recent acquisitions.

"This is a time when some really smart people are selling," added Grufferman, a 23-year veteran commercial broker whose clients have included Fortress Investment Group (FIG.N: Quote, Profile, Research, Stock Buzz) and law firm Weil Gotshal & Manges.

The problem of a tougher debt market was also raised by Jones Lang LaSalle (JLL.N: Quote, Profile, Research, Stock Buzz) Chief Executive Colin Dyer, who said buyouts of large real estate investment trusts like Blackstone Group's (BX.N: Quote, Profile, Research, Stock Buzz) $23 billion February purchase of Chicago-based Equity Office Properties (EOP) were unlikely to soon be repeated.

"(EOP) may be the last of the big deals that gets done in this current market," said Dyer, who has headed the Chicago-based real estate services company since 2004. "There is a generally more cautious level of underwriting by debt institutions into the real estate markets, which is the same thing that you are seeing in the private equity markets in general."

But both Dyer and Grufferman see broad demand for real estate exposure leading to interest in property services firms from large investment companies.  Continued...