Real estate investors and professionals say financial and real estate markets in the U.S. will hit bottom in 2009 and continue to slump for much of 2010, according to a report released Tuesday by the Urban Land Institute and PricewaterhouseCoopers LLP.

The annual industry outlook includes responses from more than 600 real estate experts, including investors, developers, property company representatives, lenders, brokers and consultants.

The report projects 15 percent to 20 percent losses in real estate values next year from the mid-2007 peak on a national level.

In general, respondents say financial institutions will continue to be pressured into moving bad loans off balance sheets, using auctions to speed up the process.

“The industry is facing multiple disconnects,” said Stephen Blank, senior resident fellow for real estate finance at Washington, D.C.-based Urban Land Institute.

“Many property owners are drowning in debt, lenders are not lending, and for many industry professionals, property income flows are declining. There is an unprecedented avoidance of risk.

Only when financing gets restructured will pricing reconcile, giving the industry a point from which to start digging out of this hole.”

According to the report, moderate-income apartments in core urban markets near mass transit offer the best investment opportunities, a consistent trend from the previous year. Distribution/warehouse facilities were the next best investment, according to the experts.

Downtown office space is expected to outperform suburban markets, according to the report, and retail development is generally near the bottom but still has farther to fall. The housing industry faces more foreclosures and no rebound in values for 2009, according to the report.

In terms of investment prospects, Seattle (No. 1) and San Francisco (No. 2) top the list, beating New York City, which has traditionally ranked first and slipped to No. 4, with Washington, D.C., at No. 3.

Savvy investors will be able to cash in on the inevitable recovery, according to experts.

“Money will be made on riding markets back to recovery and releasing properties, not on financing structures,” according to the report.