GLOBAL - It will take around 18 months for capital markets in commercial real estate to return to normal - that was the consensus among the more than 700 delegates attending the PREA Spring Conference in Boston last week.

The conference - hosted by the Pension Real Estate Association (PREA) - opened with talk of the economy and the casualties of the economic crises, made all too clear as Bear Sterns' CEO Alan Schwartz had to be replaced on the first panel, while Nariman Behravesh, chief economist and executive vice president of Global Insight, set the theme and the tone as he said boldly: "We are in a recession - the question now is how deep it is."

Behravesh also noted commercial real estate is starting to see signs of weakness, although the problems are not seen as big compared with the residential sector, however, wchih attracted thorough attention.

A record number of attendees listened as Sheridan Schechner, managing director of Lehman Brothers, summed up the root of the current problems succinctly, when he said the prevailing ethos, up to August last year, was "if you can make a loan and sell it, make it".

There was agreement among delegates the indicator to look at, both locally and nationally, was excess availability, as existing home sales is not reliable as an indicator of the market, since many sales do not complete contract.

Problems with residential foreclosures can also be very localised, pointed out Frank Nothaft, vice president and chief economist of Freddie Mac, as 20% of excess nationally is in Florida alone along with other clusters in southern California, Phoenix, Las Vegas, and the Great Lakes area.

It is important to note that despite the international focus on sub-prime delinquencies, sub-prime lending amounts for only 7% of the overall residential market. As Doug Lyons, managing director of Transwestern Invesment Company, maintained "sub-prime didn't take the market down".

The high leverage mindset that was at fault is now changing, according to many panelists, replaced with a "back to basics," relationship-oriented way of doing business.

"Relationships were dissolved by securitization," said David Maki, head of capital markets for North America, at RREEF. "But today, if you do not have a relationship, you're out of business."

Perhaps more importantly, despite economic volatility, the opportunities are not necessarily in distressed deals, according to the CEO panel as Dean Adler, chief executive and co-founder of Lubert Adler Partners, warned "a lot of the distressed deals out there are really toxic."

He said he has found some deals by working with regional homebuilders or developers, who know the local banks and the local execution, and are therefore able to step in to complete unfinished residential developments.

He stressed the importance, in this market, of being a strategic buyer, as he said: "There's never a better time than today for strategic buyers. Their biggest competitors were the financial buyers, and they are not in the market anymore. A strategic aggregator is going to have a field day in this environment."

Interest in emerging markets was also a notable theme at the spring meeting this year. "There was a time when you invested abroad because there were not the opportunities domestically," said J. Bruce Flatt, managing director at Brookfield Asset Management. "Now there are opportunities here,"

That said, here is still a commitment to looking overseas as an informal poll of delegates, found 58% were actively investing in emerging markets while of those not yet invested, 47% said they were actively considering doing so.