GLOBAL - The dynamic between managers and investors has shifted in favour of investors for the time being, according to Allen Smith, CEO of US-based investment manager Prudential Real Estate Investors (which operates under the name of Pramerica Real Estate investors outside the US).

"Terms for new funds are illustrative of this, one example being that fees on committed capital are becoming much more difficult for managers to obtain," said Smith.

That said, he noted investors are not ready to capitalise on falling values just yet as "generally speaking, among those investors with capital to commit, greater evidence of distress is needed," according to Smith.

He has also gone further than some of his industry counterparts in predicting the extent of the fall in the market.

"Our best guess at this time is that the peak to trough decline in values in the US real estate market will be approximately 25-35%, equivalent to a 200+ bp increase in cap rates," said Smith.

"The refinancing challenge is one of several factors that will put downward pressure on values - lack of proceeds to refinance existing loans and new acquisitions, deteriorating market fundamentals, sales of properties by distressed owners, etc. The refinancing challenges looms as something that will take several years to resolve," he added.

Commenting on specific sectors, Smith noted "retail is very out of favour and has seen a significant withdrawal of investor capital" but he was also keen to underline the opportunities.

"We are bullish on the multi-family (apartment) sector long-term, particularly in light of what are likely to be structural changes in the housing sector in the aftermath of the subprime debacle; we believe these changes will be favorable for demand for rental properties," he said.

He concluded: "There may be some interesting opportunities among those properties that experienced the greatest compression of cap rates and were purchased with the highest levels of leverage."

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