News
YESTERDAY'S INVESTMENT SUMMIT
May 18, 2011
| Raindrops kept fallin’ on our heads, but they didn’t stop 250 brave (and slightly soaked) attendees from joining us yesterday at the NY Bar Association for our NY Investment Summit, featuring the best and brightest experts on debt and equity. |
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| Kicking off the equity panel, Wheelock Street Capital managing partner Rick Kleeman says we’re in more of a stock picker’s market than a distress market, as there’s always a company not in distress willing to help out. But it’s market by market with uneven prices and opportunities. Is the “big one” still coming, he asked? It can, he said, pointing to systemic risk out there. “But I’m in the camp that says not.” |
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| Dune Real Estate Partners partner Greg Rush says it’s hard to paint the market with a broad-brush statement—we've seen bottoming and some stability. But there are distressed opportunities in the capital markets, especially with $300B to $600B in debt coming due. His firm has seen most success in rescue capital; however, 12 months ago it was looking at B notes and senior mezz tranches as ways to restructure. It’s now working with the borrowers, who still have a significant seat at the table, he says. “There’s a window of opportunity for our type of capital, but it may close soon.” |
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| The last 24 months have seen significant improvement in New York, according to Ackman-Ziff prez Simon Ziff. “People are less impaired,” he points out, and some assets that were underwater aren't anymore. But the distress isn't over, he warns. And you can’t talk about equity without talking about the availability of debt, he points out—more foreign banks are in the market, insurance companies are being consistent, and there are 25 different groups lending in the CMBS arena. |
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| Distress is “taking a break,” suggests William Macklowe Co CEO Billy Macklowe. We have historically low-interest rates, and he predicts that the Obama administration will try to keep them low for the election year. Whether pickup in transaction volume is due to the flood of liquidity and desire for yield, or just because we’re in between ski and golf seasons, one thing’s for certain—capital on the sidelines still has different return expectations than the market can deliver, he warns, which is a challenge. The market favors experienced operators, he says. |
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| The panelists with moderator Stephen Tomlinson, senior partner of Kirkland & Ellis. Where are the panelists looking for deals? Rick says hospitality and land deals in markets like Florida, Southern Cali, and Texas. Some markets are getting overvalued, but some are still undervalued—averages are deceiving, and he says you have to figure out the pockets of true value. The major markets (LA, San Fran, DC, Boston, NY) are full-priced for multifamily and office, Simon adds. Greg says there’s still a disconnect between the major markets and the rest of the world. The bid-ask spread has closed dramatically, but Dune’s paying more than it would have 12 to 18 months ago. |
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| MetLife head of real estate strategic initiatives Ken McIntyre, who began the debt panel, says MetLife did $8B worth of deals from its balance sheet last year and is on track for a repeat performance or spending even more. Its sweet spot: CBD, trophy, office, retail, hotel, 60% to 65% LTV, and 10-year, fixed-rate deals. But he’s seeing a fairly sized bucket of borrowers shifting from fixed to floating rates, as not everyone wants 10-year deals. MetLife’s platform is focused on cash flow. |
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| And the dominating words are “cash flow,” says Meridian Capital Group founder Ralph Herzka, which you need to count on to service the debt. He notes his firm is taking on a lot of distressed situations, and if the firm knows the borrower has issues, they’re upfront with the banks about it. The banks know the borrowers, he says, and there are opportunity funds that have come in to help. |
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| SL Green co-CIO David Schonbraun says that his firm financed a vacant building and has no problems with financing assets without cash flow. On the borrower side, if one is having trouble, but documents are filed correctly and borrower is in good standing, “we do look to help,” David says. “Turning in keys is not a black mark.” |
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| CoStar |
| And we interrupt our coverage to bring you a timely transaction SL Green was involved in yesterday. Equity partners Broadway Partners and Investcorp executed a recapitalization agreement with mezz debt holders SL Green and Vornado, merging the parties’ respective equity and debt positions to form a new ownership structure for the 1.2M SF, Class-A 280 Park Ave. This includes funding for a $150M repositioning and re-tenanting program. The recap follows the recent formation of a 50/50 JV between SL Green and Vornado that combined their total $400M debt positions. The JV will now hold a significant majority stake in 280 Park; Broadway Partners is injecting fresh equity capital to retain an ownership interest and will remain in a co-management role. |
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| Ladder Capital Finance president Greta Guggenheim says some groups are aggregating for CMBS transactions. In prior generations,life companies were big buyers in senior CMBS, but now that has shifted to the money markets. B-piece investors have been using several strategies—pairing up with a mezz investor qualified to own and operate assets, or hooking up with strong REITs in JVs. |
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| The panelists (with moderator Matthew McManus, chairman of NAI Bluestone Real Estate) also discussed the transactions they’re working on. Greta says her firm is not only looking at primary and secondary markets, but will look at select tertiary. Meridian is in the process of doing deals from the small to $150M, and Ralph says they need sponsorship, experience, and market data to support them. Interest rates are so incredibly low that Greta expects volume to really pick up for fixed-rate product. |
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| “2012 will be a robust year,” Ken predicted (that is, if we make it past the end of the world starting May 21, as predicted by billboards and transit ads around the city). Check back in tomorrow's issue to hear what some of our attendees are up to. |
