By Edward K. Elanjian

With the inauguration finally behind us and a new cabinet nearly in place, countless questions abound regarding just what we can expect in the new economy. Some predict a recovery, others see more contraction, and most are buckling down for more of the same.

While we look ahead to what will likely be a highly unpredictable year, below are a few key things to keep an eye on.

• Green 2.0 – Expect the importance of “green” to get much more attention in 2009. With renewable energy a core focus of the new administration, projects with a green component will be a top priority.
• Clean up or pay – A possible increase in environmental enforcement will go far to encourage owners of contaminated properties to either remediate the land or sell it at a reduced rate to hedge liability.
• Who’s building? – While overall construction activity dropped off in 2008, there was a marked increase in public and institutional projects (e.g., schools, prisons, highways, etc.) A continued increase in these types of projects, coupled with the new administration’s emphasis on funding “shovel ready” infrastructure projects to create jobs, could help sustain the construction industry.
• FHA to save the day? – FHA loans represent the only liquidity in the mortgage market and are still one of the best options in rejuvenating the volume of home purchases. With mortgage rates at all-time lows and applications for FHA loans on the rise, there is clearly a demand, but access to capital remains an issue. The question is whether the FHA can prop up housing prices or whether this will just allow already creditworthy borrowers an opportunity to refinance and lower their payments.
• Pension perplexity – With the market continuing to change, pension funds are being forced to reevaluate their asset allocations to avoid selling into a distressed market. What will they do with their real estate assets? Although the huge loss in value among pension fund assets may result in an increase in the allocations to real estate holdings, this is likely to be a defensive maneuver. Watch for signs of new money flows into real estate development, rather than distressed debt funds, before breathing a sigh of relief.
• Where did the renters go? – With foreclosures sweeping across the housing market and thousands of families flocking to the rental market, you would expect the demand for apartments to be through the roof. Guess again. With many former for-sale properties now being rented out and a growing number of sublets flooding the market, apartment owners are left wondering where all of the tenants went. They’re out there, but supply is growing faster than demand.
• The sector formally known as retail – These are dark times for the retail market. With the economy forcing major retailers closing their doors and consumer demand continuing to drop, recovery in the retail sector appears to be a long, uphill battle.