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TEXT OF INTERVIEW

Lisa Napoli: Lost in the headlines of the subprime mess is the story of commercial real estate.

It's not suffering quite the way residential real estate has, but PricewaterhouseCoopers has just surveyed the commercial landscape and the title it gave the report speaks volumes: it's called "Rough Road Ahead for Investors."

You'd have to have a pretty strong stomach to plunk any money into the commercial real estate world right now.

Susan Smith is editor-in-chief of the report.

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Napoli: Susan, what rough patches are you seeing?

Susan Smith: For the past ten years, I think investors on the commercial side were really loving every moment of what was going on: rents were rising and the deal flow was great and it seemed like everything was moving along really fine and now, all of a sudden, buyers and sellers aren't seeing eye to eye on pricing and we're also seeing, in some sectors, possibly an increase of new space, space that developers started to build when the economy was doing really well and market conditions were great and unfortunately, those projects now are getting ready to be delivered at a time when demand is slowing down.

Napoli: Is there a connection between the residential downturn and the commercial downturn? Are there similarities?

Smith: You know, the one thing I think you really have to keep in mind is that the residential market and the commercial property market, they're really two very different markets and at the beginning of last year when we started with the subprime mortgage problems in the residential side, you were really seeing a lot of problems because of an oversupply of space and you know, we were fortunate enough in the commercial side to not have that. Unfortunately, what happened was all of the subprime problems and the mortgages and the lending, it really put a red flag throughout the whole entire financial industry and it made lending more difficult not only on the residential side, but also in the commercial side.

Napoli: But it does seem like both markets are linked to what happens to me as an individual even if I have no money in the game, no skin in the game, so to speak, right?

Smith: No, absolutely. They are linked and when something happens in the overall economy, it's felt probably first with the consumer and then it trickles its way out into every aspect, but again, it's just really important also to realize that the commercial side is definitely healthier than what's going on in the residential side.

Napoli: And that's the upshot of this report, even though you've titled it "Rough Road Ahead for Investors"?

Smith: I believe so, because there's more difficulty in going out and finding that property that you want to buy or even listing a property and trying to sell it, so in terms of what buyers and sellers were used to over the last ten years and what they're encountering now, it's definitely going to be a rough road, but it's also important to realize that there are opportunities out there for investors. It's just a matter of what your strategy is and I always like to think that real estate investors are optimistic.

Napoli: You also have to have a pretty strong stomach, I'd imagine.

Smith: I think you do, I think you do. People always say to me "well, you're in real estate, I can't believe you don't own so much real estate" and I say I know what goes into it. I know how people react to all the things you have to watch in real estate: what's going on with employment and what's going on with the consumer and to me, there's just too much to focus on that it does... you need a strong stomach and good optimism.

Napoli: Thank you so much for your time Susan. I appreciate it.

Smith: Thank you. Have a good day.

Napoli: Susan Smith is with PricewaterhouseCoopers.