News
UP AT NIGHT
April 4, 2011
| What keeps some of the area's foremost capital markets experts awake at night? Interest rates, inflation, conduits back in the game, disaster in Japan, and the oil supply. But in the Thursday morning light when they spoke at Bisnow's Capital MarketsSummit at the Hyatt, they were fairly optimistic that money and opportunities for CRE investments are on the rise. |
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| The equity panel: moderator Sherin & Lodgen?s Gary Markoff, Wells Fargo?s Steve St. Thomas, JP Morgan Real Estate Assets Group's Craig Theirl ($46.9B in assets), Blackrock?s Shelton Getter ($3.56T under management), CBRE Investors? Vic Bucchere, and Ackman-Ziff's Adam Steinberg. Steve stressed that in the hunt for deals, he starts with an economic analysis of the region and its future growth prospects. Now, he says, it's very important to own assets at a low-cost basis since the recoverywill be slow. In Boston, averaging 3% annual population growth over the last 10 years, it's imperative. In Atlanta, he's trying to buy industrial property at $20/SF that in good times sold for $50/SF and hopes to sell for $30/SF. |
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| In today's improving capital markets, competition from opportunity funds has increased dramatically in the past six months, says Craig whom we snapped after his panel adjourned. Toward the end of the last cycle, he says at times his team ?got out over our skis a bit?, not always demanding 20% equity from JV partners. That was then. On the core side—as he buys—he's also waryabout what will happen with interest rates and hopes to hit his exit price. His group recently purchased the Landmark Center for$530M and the Parklane Seaport apartment building for $193.8M. |
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| Vic (right, with PM Realty Group SVP Mark Chapman) says he sees a good risk/return profile in ?next tier? cities that are projecting rent growth and haven?t had much cap rate compression. In Boston, he tells us, there's a bit of a bubble. He's buying industrial, retail, and residential. The artificially low cost of debt, he says, ?has thrown us a curve ball.? He also worries that the disaster in Japan has hobbled a vital player in the world economy, ?25% of the world oil supply is in revolution,? and if inflation takes off it could have a ?monumental impact? on real estate. In this business, he says, money isn't made managing buildings; it's made on the buy and sell. In a few words to the wise, he tells us, CRE folks are ?herd investors.? |
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| Adam says that in searching for core deals to interest an investor, he may do a recapitalization the first time around "to seed the relationship? for the next deal. He often looks for some level ofdistress, off-market transactions and recapitalizations in strong markets. In choosing deals, Adam wants to be very selective but not so conservative that he passes on one that ultimately gets done. He also seeks more equity from sponsors (10%) than a few years ago (3% to 5%). |
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| The debt panel: moderator Gary Markoff, John Hancock?s Tim Roseen, Eastern Bank?s Gary Leach, and CBRE multifamily group?s Kyle Draeger. Kyle tells us that in '10, his team?s activity jumped 140%. They did $11.7B in debt and equity placements and were active in every market, mostly with transactions for A and B assets. So far in ?11, Kyle says there's definitely more activity than a year ago. It's ?looking very positive.? But issues to face include $45B in debt rolling over in the next three to five years. Kyle says it can't all be ?sucked up in the private sector.? As for Fannie and Freddie, it would dramatically affect his deals if they went out of business, but he doesn?t expect a decision before '13, which if it occurred would then take another five to 10 years to implement. |
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| We snapped Gary with Nitsch Engineering?s Judy Nitsch. Gary's bank wants him to bring in more stabilized multifamily assets. In lending, he adds 100 to 150 basis points to interest rates to make sure Eastern at least breaks even on the debt service. He isn't ready to jump back onto the CMBS bandwagon, and it ?baffles me? that a borrower would want a CMBS loan. Also, there's a lot of capital available but the bigger issue in his mind is the?overhang? left from the financial crisis. There aren't a lot of $200M deals being done. In fact, he observed, attitudes are such that a $2T bank couldn't bid on a $65M deal without a partner. |
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| We snapped Tim after the event. (Those seats were once filled.) He says John Hancock is only looking at stabilized properties. They look at NOI on debt yield and the balance at the end of the loan term. Regarding Fannie and Freddie, he doesn?t think the federal government should subsidize standard market rate deals. The two dozen or so conduit shops that are back ?could be formidable opponents,? he says. Further, he tells us, if they do what they did last time around, we'll see the markets go downagain. At risk of stating the obvious, he offers the very importantreminder considering the recent past that for a solid investment:buildings have to be occupied. Hey, sometimes the obvious is exactly what we need. Speaking of which, this is the end of the article. |
