News
REIT MEET
June 9, 2011
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| SL Green, worry? Nah. There have been talks about job cuts in the financial industry, but the REIT thinks otherwise. CEO Marc Holliday, president Andrew Mathias, and CFO Jim Mead told attendees during NAREIT’s REITWeek yesterday that if there was going to be a real sizable cut in jobs, tenants would be calling the landlord to try and give space back or restack. (See, we even had an archive pic of Marc giving the A-OK sign. And those Christmas ornaments? We thought you needed some cooling down from this 100-degree heat.) Those were the convos SL Green was having during the better part of ’08 and ’09, but now tenants are generally discussing consolidation,growth, and expansion. While the rate of job recovery is not as sharp, the financial industry is still contributing jobs. In New York City, stable job growth is leading the increased lease up the $4B SL Green has acquired in under-leased products over the past two years. |
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| Vornado has the liquidity, but NY and DC’s acquisition market doesn’t have the “killer distressed pricing,” according to CEO Mike Fascitelli (above, speaking to 650 at a Bisnow breakfast event), EVP Wendy Silverstein, and CFO Joe Macnow. The REIT’s looking for deals that offer good returns with reasonable underwriting assumptions, but finding them has been tougher than they’d thought—NY has recovered and pricing is ahead of fundamentals, while DC never really experienced a dip and proved its resiliency. But this hasn’t changed Vornado’s acquisition strategy on product types or markets (office/retail/NY/DC). On the pricing side, low interest rates have made all the difference, but large CMBS loans were scarce, which Wendy said worried her if there was a billion-dollar building that needed financing. But Vornado was in the market with San Francisco’s 555 California, receivingover $600M from the CMBS market, which was competitively bid. Wendy was pleasantly surprised. |
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| Despite the not-so-bright economic news, Brookfield Office Properties has seen strong leasing demand, signing 3M SF worth of deals in Q1 and anticipates another 8M or 9M SF for the remainder of the year, we learned from CEO Ric Clark, prez/CIO Dennis Friedrich, and CFO Bryan Davis (Dennis, above, was promoted this week, along with Tom Farley to prez/global COO and Jan Sucharda to prez/CEO of Canadian operations; CBRE’s Mitch Rudin will join as prez/CEO of US commercial operations at the end of the month). On the strategic side, it’s finishing the divestiture of its residential business (it already has a $500M note and expects $550M in cash by the middle of the month). It’s also nearing the completion of refinancing $1.7B worth of office fund debt, having already refinanced $1.4M with contracts out on half of the rest. It’s working on developments in New York City, Perth, London, and Calgary, as well as the redevelopment of NYC’s World Financial Center later this year. |
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| Selling $600M to $700M worth of multifamily assets in the rustbelt regions of Detroit, Ohio, and upstate NY a few years ago and plunking down the capital into the Mid-Atlantic (it purchased Ellicott City, Md.’s Charleston Place, above, for $103M in October) turned out to be a good move for Home Properties—now its NOI is well on the way to be at a minimum 1% better than the last recession, a fairly big adjustment in the portfolio, says CEO Ed Pettinella and CFO David Gardner. We’re still in the early stages of recovery, but out of the trough and into the middle. However, the ability for the resident base to pay more is there, with its rent-to-income on the lower end of the industry at 17.1% (it’s been over 20% in the past), meaning the propensity to pay more in rent for a cycle or two is there. There’s been no substantial pullback from residents, and pushing rents means even greater growth yet to come. Last year, turnover was 38%, compared to the industry’s 57%, and in Q1, it was 7.5%— the lowest the REIT has recorded. In May, new leases jumped 6.1%, while renewals increased 4.3%. |
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| Despite mega retailers like Walmart and Target focusing on grocery sales, grocery-anchored assets in Regency Centers’ portfolio (like Heritage Center in Irvine, Calif., above) aren’t feeling the heat from them, despite traditional markets only doing 70% of today’s grocery biz (eight years ago, it was 90%). Instead, it’s competing with independents that are lowering their prices to compete with the Walmarts, we learned from CEO Hap Stein, prez/COO Brian Smith, and SVP Lisa Palmer. Despite this, the positive leasing at Regency Centers has continued, even with 100k SF of Blockbuster stores closing. Move-outs are lowering to historical norms, and if leasing prospects turn into signed contracts, its portfolio will be 93% occupied this year. Regency scaled back development plans the past few years, but has done a few grocery-anchored infill projects, and plans $25M to $75M of new starts this year and closer to $100M next year. |
