The Graduate Baruchian

September 20, 2011 brought the best and brightest of Real-Estate Capital Markets to Pier Sixty at Chelsea Piers. Following opening remarks by the conference sponsors, ICSC and NAIOP,the conference brought a wide range of speakers via panel discussions.  The following are highlights that this correspondent found most relevant.

Seaside Chat with Mark Vitner, Senior Economist, Wells Fargo Securities — The Economic and Market Outlook for Commercial Real Estate.  Interviewed by Robert White, Principal, Real Capital Analytics.

Robert White and Mark Vitner

Inflation is coming because Fed will use every tool to get the economy going.

A greater perception of risk, there will be less business activity. We have to fix the housing slump (i.e. negative equity in housing) so that the greatest strength of the US (i.e. labor mobility) can be realized.

National RE cycle is nearly 16 years, ’56-57′ then 73′-74′ then ’89, then ’05-’06’ keep an eye on 2021.

The industrial market shows a lot of promise and is under appreciated. There will be a return of manufacturing to the US, especially to inland markets.

Employment will set the terms for the Real-Estate market.  No income growth results in flat retail sales. Sluggish growth is very hard on the office market.  Bottom line:  “It’s all about the jobs.”

A View from the Executive Suite. Panel Discussion with Kenneth Bernstein, CEO, Acadia Realty Trust; Alex Klatskin, Partner, Forsgate Industrial Partners; Jeffrey Olson, CEO, Equity One; and Scott Rechler, CEO, RXR Realty.  Moderated by Peter Linneman, Ph.D., Principal, Linneman Associates.

Jeff Olsen, Alex Klatskin, Peter Linneman, Scott Rechler & Ken Bernstein

Linneman: What the smartest thing that you’ve done lately?

Olsen: Used equity rather than leverage to purchase.

Klatskin: Focused on the quality rather than the quantity of tenants.

Rechler: Focused on the creative class, that is the higher-margin companies.

Linneman: Risk management. It’s as high as it has ever been. What are you doing?

Bernstein: It’s really about reframing your mindset.  There was a recent WSJ about failure. Researchers found that saying a project has a 10% chance of failure seems much worse than a project has 90% change of success.

Rechler: Take nothing for granted.  Every quarter (sometimes every Monday) has a new pattern.

Klatskin: Through the last cycle we’ve seen everything.  It’s a great playbook for going forward.

Olsen: Action is more important than being indifferent.

Linneman: What excites you about this market?  What will surprise the audience?

Bernstein: Being a vertically integration expert will be a strong point.

Rechler: We are the bottom of a cycle, it’s large, but buy right, and we’ll climb out of it. Being private, we can focus long rather than on quarterly dividends.

Klatskin: Fixing “broken” buildings in great locations.

Olsen: Redevelopment in urban settings, especially for larger retailers.

Debt Panel – The Changing Landscape.  Panel discussion with Jeff Fastov, Managing Director, Credit Suisse; David Gray, Managing Director, DRA Advisors; Jeffrey Wiseman, Managing Director, Macquarie Capital; and Timothy McGinnis, Managing Director, NY Life Investment.  Moderated by Shawn Rosenthal, Principal, The Ackman Ziff Real Estate Group.

Shawn Rosenthal, Jeff Fastov, David Gray, Jeff Wiseman, Tim McGinnis

This downturn has the silver lining of seeing sponsors show their true stripes.  In other words, who behaved well and who is hard to deal with.

For borrowers with good cash flow and property, and want to leverage beyond what CMBS can do, the mezzanine market has a lot of liquidity.

How to keep “skin in the game” with regards to CMBS. Originators should keep some of the risk (i.e. around 5%).  It’s a more long-term approach.

Structured Finance  Panel discussion with John Garth, Managing Director, Pembrook Capital; Christopher Linkas, Managing Director, Fortress Investment Group; and Brad Wildauer, Partner, AREA Property Partners.  Moderated by Timothy Zietara, SVP,  Torchlight Investors.

Tim Zietara, John Garth, George Perry & Brad Wildauer

The pullback in CMBS market has offered lots of opportunity.

The change from “mezz lending” to preferred equity has the effect that the sponsors is not foreclosed upon, but lowered into a subordinate position.  The role is diluted but not wiped out.

The last two years have seen more diligence while looking at the sponsor, the business plan for transition or development.  This period has seen a focus on who has execution experience thought a variety of cycles.

There’s a lot of liquidity in very narrow markets (i.e. Class-A, premier markets).  Anything beyond the best markets, we need the right story, good underlying dynamics and some sort of supply-constrained market.

Investment Fund.  Panel discussion with David Gilbert, Chief Investment Officer, ING Clarion Partners; Brad Hutensky, Principal, Hutensky Capital Partners; and Kevin Smith, Managing Director, Prudential Investment Management.  Moderated by Jeff Barclay, Managing Director, Goldman  Sachs.

A wide range of opinions on what the role of debt should be.

Any sane strategy would include using the incredible low of rates now and taking advantage of the long end of the curve.   The one simple move, if you can do it, is to change from floating to fixed and lock in these incredible low rates.

Maturing Debt & Loan  Sales.  Panel discussion with Toby Cobb, co-CEO, LNR Property; Ray Potter, Principal, Hodes Weill & Associates; and David  Tobin, Mission Capital Advisors. Moderated by Robert Verrone, Principal, Iron Hound Management Company.

Every workout is like a call option.  The questions becomes: what’s the premium?

What happened to the party that never happened on the buyer side (like the early ’90’s)?  Did it never happen? or, did it not happen, yet!

Maybe it won’t happen until the regulatory environment changes; until the can stops being kicked down the road.

Many thanks to Committee Chairs, Tom Caputo, Tim Zietra and Alex Klatskin, the staff of ICSC and NAIOP for pulling everything together and the speakers for making a great conference.