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United States commercial real estate investors may turn to other opportunities as vacancies remain high and interest rates rise, according to the Chief Executive Officer, Starwood Capital Group LLC, Mr. Barry Sternlicht.

'There are a lot of tourists in property and REITs right now,' Sternlicht said in a panel discussion at the Milken Institute Global Conference in Beverly Hills, California, adding that, 'Everybody is racing for yield.'

If interest rates head higher, 'you will see a pause that will take a lot of capital out,' he said. Corporate bonds may benefit, according to Sternlicht.

A rebound in the real estate market, Bloomberg reported on Tuesday, was being hampered by weak demand and commercial-mortgage-backed financing that declined 95 per cent last year from its record level in 2007. Vacancies in the first quarter rose to the highest level since at least 2000 at the nation's biggest malls, and climbed to a 16-year peak at office buildings, research firm Reis Incorporated said earlier this month.

US commercial real estate values in February fell to 42 per cent below the market top in October 2007, according to the Moody's/REAL Commercial Property Price Index. Almost one-third of repeat sales transactions were of distressed properties, compared with less than 20 per cent in early 2009, Moody's said.

The Federal Reserve said earlier this month that the economy expanded 'somewhat' across most of the US in March as consumer spending and manufacturing improved, signaling the recovery is broadening without gaining much speed. Fed Chairman, Ben S. Bernanke and his colleagues had been debating how and when to tighten credit, including whether to modify a pledge to keep interest rates low for an 'extended period.'

Deal volume may increase in 2011 when distressed buildings that have been surrendered by owners to special servicers reach the market, President of commercial brokerage Eastdil Secured LLC in Los Angeles, Michael Van Konynenburg, said during the panel discussion.

Clearing the inventory of foreclosed properties will result in 'a lot more' financing through the issuance of commercial mortgage backed securities, Van Konynenburg said.

Cheap debt fueled the commercial property surge with a record $237bn in CMBS sales in 2007, according to JPMorgan Chase & Company Such sales fell last year to $12.2bn.

The expected discounts for distressed buildings have not materialised as investors holding 'mountains of cash' compete for those deals, said Sternlicht, whose firm is based in Greenwich, Connecticut.

'We were all joking that the distressed cycle lasted about two months,' he said.

Any discounts for commercial real estate in distress have probably come and gone, Sternlicht said.

'I am not sure that we're going to see great opportunities,' said Chief Executive officer, of New York- based LeFrak Organization Incorporated, Richard LeFrak, who also said, 'I'm sorry, but I missed the whole thing. It's like we blinked and it went away.'