News
BURNING MONEY QUESTIONS ANSWERED
May 30, 2012
| Yesterday, over 275 joined us at the Westin River North to hear capital market luminaries offer perspectives on the money that greases the wheels of commercial real estate. (Unfortunately, no one was giving away free money.) | ||
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| A measure of health has returned to the capital markets, the panelists agreed, but nagging uncertainty—economic, political, international—is still troubling, except for multifamily. (Other areas of business are going to start spreading rumors about multifamily out of jealousy.) If anything, money's a little too eager to park itself in multifamily deals. | ||
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| Headlining the event: Capri Capital's Quintin Primo and Pearlmark's Stephen Quazzo, who formed a panel by themselves. Jenner & Block's Donald Horvath, our expert moderator, left, posed questions about pension funds, construction lending, and the nation's fractious political climate. | ||
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| Quintin said that broader economic uncertainty is still driving a flight to quality among investors, to multifamily and to a lesser extent retail. He says Capri likes these asset types, especially in an urban setting. Gateway city CRE still consistently outperforms other parts of the country, and US population growth will mean the continued growth in the gateways. Capri's also going global. After a long look at "the places you're supposed to look at, China and Brazil, we are unconventionally targeting high-growth emerging markets in Africa," Quintin explained. | ||
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| Stephen noted that opportunity exists in recapping owners of strong assets. For good investments, the capital is out there. But he added that multifamily deals in "saltwater markets" with sub-4 cap rates are "a little hard for us to make sense of." In fact, he stressed, a lot of foreign capital is eager to make its way into US property markets, especially from Europe and Latin America, posing opportunities to make money from the influx. While the US isn't immune to problems originating overseas, Stephen said on the whole he's a long-term bull on the US economy, and CRE investors need to be entrepreneurial in outlook to take advantage of uncertain, but improving, conditions. | ||
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| GRS Group CEO Charles Victor led another panel of capital market experts, kicking off the discussion with a question about the "wall of maturities," that is, the mass of bum CRE loans from the mid-2000s that are coming due. He also posed questions about construction lending, CMBS, the relative health of asset classes and CRE in various parts of the country, and more. | ||
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| Heitman's David Maki asserted that the wall of maturities is not going to be a cataclysm, since banks are healthier than they were a few years ago; they can take the losses and move on. More fundamentally, there will likely be a migration away from A properties and the coasts and to other properties, such as B malls. "Not all B properties are the same," David noted, with some offering good yields. | ||
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| Ares' Bruce Cohen called the wall of maturities "the Y2K of the moment," saying that the industry will work through it without any kind of serious dislocation. (Wait, we can come out of our Y2K bunker? Sounds like a trap.) He suggested that capital needs to move the pendulum back toward greed a bit and away from fear. Ares, for one, is considering deals in markets it might not have previously. "A migration to the next level of risk is already under way," Bruce said. | ||
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| Aries Capital's Neil Freeman said that the rush to A-quality apartments and offices in gateway cities has pushed cap rates on those assets down to the mid-4 range, which is causing some institutional investors to look for alternative markets to get more attractive yields. Construction lending continues to be constrained by regulators telling banks not to touch it. CMBS is on the way back and will probably exceed $40B in 2012, but spreads and availability have experienced volatility. | ||
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| MetLife's Betsy Clark agreed the core properties in gateway cities have been emphasized to the exclusion of other strong markets "that aren't really secondary." Will capital lose some of its timidity and begin a migration away from gateways? We'll have a clearer idea by the end of summer, Betsy predicts, with a lot depending on the overall health of the economy. | ||
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| In attendance was Prime Group's Michael Reschke, who even got a shout-out from panelist Stephen Quazzo. Top of mind for Michael: his plans in the Loop to convert the Roanoke Building (11 S LaSalle) into a hotel. | ||
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| Just ahead of his turn at moderating, we caught up with GRS Group CEO Charles Victor (center), along with GRS's Tony Mueller and Michael Gerard. Bisnow sponsor GRS Group offers transaction and title services, with offices in seven US cities, as well as London, Frankfurt and Tokyo. More info here. |
