There was an industry conference in Las Vegas Thursday and Friday on the subject of distressed real estate. A blogger who is a professional property manager wrote about the conference (and is continuing to write more, here and here).

1. No one has any idea when we will reach a bottom simply because no one knows how many classes of real estate are going down. The most optimistic guess was 2010 but most wouldn’t even hazard a guess. Some of the grey hairs think 5 or 6 years.
2. The problems in the residential side are quickly spilling over to the commercial real estate market.
3. The spread between bid and asked prices is as large as the Grand Canyon. Banks and particularly the community banks can’t afford to take the write-downs the bid price implies.
4. Aside from say multi-family and really solid income producing properties (producing solid verifiable income now, not projected income) there is no debt available. There is lots of equity looking for 20% and up returns. Since these will have to be largely unleveraged, the asset price required to deliver the return is abysmally low. Further driving down implied valuations is the fact that the equity is Wall Street money with 3 to 5 year time horizons. No one thought that was achievable (with the exception of the Wall Street boys in the audience, of course).

The bottom line is his summary of the outcome:

As I mentioned in the first article, one of the reasons for attending the conference was to network and hopefully get a line on some attractive investment opportunities. The conference convinced us to pull in our horns for the time being. One of the best comments I heard from the panelists concerning distressed real estate was to always remember that when you buy in a market like this you are not stealing anything; you are buying at market prices.

All those folks who are snapping up foreclosed property in the belief that they are getting bargains should read that last sentence. And then read it again, and again, until they have absorbed the implications.