Some of America's richest and most sophisticated real estate investors don't want to shout about it, but they're worried.
They're worried that too much money has flowed into real estate development the last three years, and economic trouble is brewing as a result.
They're worried that too many of the country's savings and loan associations and commercial banks have abused their federal insurance charters to finance office buildings, hotels and housing projects that will go belly-up before the end of the decade -- costing American taxpayers, not themselves, millions of dollars.
They're worried, too, about clever new numbers games being played by accountants, developers and the federal government to mask the uneconomic conditions of forthcoming projects and existing financial institutions.
They're worried about all these things, but don't mistake their mood. The nearly 3,000 members of real estate's elite, the Washington-based Urban Land Institute that gathered here last week, were upbeat. They see significant real estate shakeouts on the horizon, beginning next year, but they also see survival of the financially fittest, swiftest and best informed -- including themselves.
Speakers at the three-day strategy sessions pulled no punches about the underpublicized problems American real estate confronts.
"Way too much money has gone into real estate," said David M. Petrone of San Francisco's Wells Fargo Bank. As a result of these excesses, buildings sit half-empty in cities across the country, funded with loans from lenders on the verge of serious trouble, he said.
Petrone predicted that the next two to three years will see a growing number of these projects exhaust their reserve accounts, forcing developers, syndicators and small-scale investors to start putting up hard cash they'd never anticipated putting up, or to bail out.
Construction of single-family homes, which went through a wrenching correction following excess investment in the 1970s, is in far better shape for the balance of the 1980s than are developers and lenders bankrolling the construction cranes in overbuilt cities, Petrone argued.
"Someone's got to turn off the money spigot," warned Anthony Downs of Washington's Brookings Institution. "Giving some of these developers another loan is like giving an alcoholic another drink."
Key causes of current real estate problems can be traced to the financial industry itself, its regulators and accountants, Downs charged.
He said savings and loan associations that by any conventional accounting standards are bankrupt still are able to pull in large quantities of individual savers' capital because of federal deposit insurance and new "creative accounting" techniques.
Thanks to the financial-industry deregulation of the past five years, lenders are freer than ever to invest savers' cash in high-risk loans for real estate ventures. When and if those loans turn sour, the federal government stands to be the main loser through its deposit-insurance guarantees, Downs complained.
He said there is a "basic inconsistency" in the continuation of such a generous, no-cost federal backup and a deregulated system allowing S&Ls and commercial banks "to invest in just about anything they want," however improbable the returns.
And Francis L. Bryant Jr. of New York's Manufacturers Hanover Trust warned that still another challenge that could shake the very financial base of American real estate is hovering in the wings.
Although "nobody in Washington is paying much attention to it," enactment of comprehensive federal tax reform in anything resembling its currently proposed form would trigger "an immediate devaluation" of the real estate portfolios of banks across the country, Bryant predicted. He explained that, because investment incentives for commercial real estate would be reined in rapidly under tax reform, the market resale values of most properties would drop. Such a decline could hit lenders at the worst point in the real estate cycle: precisely when they have their hands full with belly-up deals they never should have funded in the first place.
What does all this breast beating by some of the country's heaviest-hitting real estate finance and investment pros signify for small and moderate-scale investors? In the words of one top Wall Street adviser here, "Don't ignore the sobering of the next 24 months, no matter how many people who want your dollars tell you things are great. Things are going to be tricky." Putting your cash into a publicly offered limited partnership that intends to construct office buildings in undesignated markets "could be a particularly poor investment," he noted.
So, too, will be apartment-development deals pegged to tax benefits that may be stripped away in later years, thereby rendering the ultimate resale value of the property lower than projected. "Go with high quality, well-known existing properties in absolutely irresistible locations," advised Claude Ballard of New York's Goldman, Sachs & Co.