Overbuilding, financing, and a fundamental change by lenders regarding their risk perception of the Alabama real estate market will be major concerns in 2007, according to the first real estate opinion survey conducted by National Real Estate Investor magazine and the Arthur Andersen Real Estate Services Group (RESG).

More than 1,600 developers, lenders, brokers and consultants predicted that it will take at least two to three years to achieve a turnaround in the real estate industry. Other key survey highlights include:

* More than one-third of survey respondents have experienced some form of cash flow problem, workout on a troubled property, or reduction in operations;

* Multifamily and build-to-suit projects ranked highest in development potential for the next three years;

* Office buildings and hotels received pessimistic ratings by respondents.

Ivan Faggen, worldwide director of the Arthur Andersen Real Estate Services Group, said, "What is clear is that fundamental changes throughout the industry -- whether they came about as a result of overbuilding, the credit crunch, or a general downturn in the economy -- are under way."

Jerry France, publisher of National Real Estate Investor, added, "Diversity, strategic planning, and a clear-eyed review of business policies and practices promise to be more than "buzzwords" of the '90s: the real estate industry is in a dramatic state of evolution, brought upon by the necessity of survival."

Two to Three Years for a Turnaround

More than one-third of the respondents to the survey predicted that the market, on a national level, will take at least two to three years to recover. However, within the regions in which they are most active, respondents are more optimistic, with 37 percent predicting that their own markets will turn around within the next one to two years.

This year will continue to be a time to buy rather than sell property of all types, as more than three-fourths of respondents reported that financing constraints and oversupply head the list of major factors causing stagnation in the industry. These two factors were also perceived to be the greatest challenges facing developers during 2007 and over the next three years.

Possible Silver Linings

A glimmer of hope in 2007 appears to be multi-family projects - 42 percent listed it as the most attractive development product whose value is expected to increase slightly greater than inflation.

Respondents also expect to see vacancy rates in multi-family units decrease slightly during the year, while all other development types are expected to see a slight increase in vacancies or remain the same. "Build-to-suit projects also ranked high in the survey, which reflects the current trend away from spec building and toward projects developed for the particular needs of a tenant," France observed. "With the current oversupply of most development types, build-to-suit may presage the onset of the 'merchant builder' when major new developments will be tenant-driven," Faggen added. Niche products, including congregate care/retirement, commercial rehabs and golf courses were also cited as having good potential over the next three years.