Containing the collective insight of the 3,500 partners and professionals worldwide comprising Ernst & Young’s Global Real Estate, Hospitality, and Construction Industries Practice, this annual report reflects the dramatic nature of today’s real estate market.One of the main themes running through the Annual State of the Real Estate, Hospitality, and Construction Industries 2003 Report is the rapidly shifting nature of our industry. Where once the real estate industry was dominated by transactions, much of the activity now shaping the industry of the future is going on behind the scenes – in the ways companies are being forced to operate, report their performance to investors, or manage rising costs. In a post Sarbanes-Oxley environment, REITs and opportunity funds (two of the main drivers of growth in the real estate industry in recent years) face the prospect of dramatically increased business expense and, ultimately, lower values. One investment bank recently theorized that asset values in the REIT sector may fall five to nine percent as a result of these behind the scenes pressures and the Bush Administration’s plan to do away with double taxation on corporate dividends. We at Ernst & Young believe that REITs face the daunting potential prospect of a one- to three-cent hit to earnings as a result of Sarbanes-Oxley’s new business requirements and regulations. Taken individually, these items may seem insignificant, but looked at in total, we believe they present significant issues.The renewed emphasis today on business ethics, corporate governance, and transparency is of paramount importance for real estate. These and other business issues raise the prospect of further rule changes, accounting guidelines, reporting regulations, and more. All potentially carry significant additional costs to real estate businesses and tenants at a time when the vast majority of U.S. businesses are looking to cut costs.For the first time in recent memory – certainly since the tax reforms of 1986 – tax and accounting issues are front-and-center in the minds of the real estate industry. For 2003, the focus will be not simply on the condition of real estate markets, but the condition and management and operation of the companies, public and private, operating in those markets.Dale Anne Reiss is Global & Americas Director of Real Estate, Hospitality & Construction Practices at Ernst & Young (www.ey.com). To read excerpts of Ernst & Young’s Annual State of the Real Estate, Hospitality, and Construction 2003 Report, click on the links above.