Bargains beckon buyers.(real estate )

Real estate opportunity funds -- derisively dubbed "vulture funds" -- are circling Silicon Valley looking for fire-sale-priced properties owned by struggling companies burdened with real estate and short on cash.

Such funds typically are the vanguard of real estate investment. They enter markets in which significant risk remains, buy at the lowest common denominator, then work furiously to produce annual returns of 15 percent or better. Their investment horizon is short, with some properties coming back to market as soon as three years after they were purchased.

The grim tableau follows a year in which Silicon Valley office and research property rents have plummeted, and underlying property values often have taken a hit. The scene contrasts sharply with the commercial property picture only 18 months ago, when a feeding frenzy descended on the valley Rents ticked up almost daily and property values headed north.

An as-yet unreleased Ernst & Young survey of opportunity fund general partners has found that opportunity funds based in the United States and abroad have more than $18 billion ready to invest in real estate worldwide. The funds have raised in excess of $80 billion since the beginning of the 1990s, when they came into full flower in response to the nationally depressed real estate market.

San Jose is among five tech-dependent U.S. real estate markets that have suffered the worst increases in office and industrial vacancy rates since the tech-wreck began, according to Torto Wheaton Research, a Boston-based real estate consultant Among the five, which also include San Francisco, Seattle, Boston and Austin, San Jose is faring the best based on third-quarter vacancy rates -- but just barely.

The opportunity funds likely won't start buying in the valley until the fourth quarter of 2002, observers say. The spread on property values between many buyers and sellers in the valley -- and nationally -- generally remains wide. Only about $800 million of investor-owned commercial real estate in Silicon Valley changed hands this year, down from $2.8 billion last year That's primarily because buyers and sellers have not been able to find common ground in such a chaotic market, according to Colliers International.

A similar phenomenon is occurring on the residential side as sellers hold out for more money and fearful buyers bid low.