While I’d like to be known as a man of few words, I don’t think that’s me. But in the Dec/Jan issue of PERE magazine, Executive Editor David Snow’s succinct opening paragraph struck me: “The good news is that investors in private equity real estate are now better equipped than ever to benchmark the performance of their general partners. The bad news is that much of the capital put to work in recent years is going to perform relatively poorly.” From David’s non-practitioner perch he couldn’t be more right and we all know and are going to see more and more proof of this. And while performance and thus returns are and will be down, opportunity in certain sectors may abound. Witness the launch by some veteran real estate guys, Gallin Glick Sullivan O’Keefe, of a consultancy probably born out of opportunity but my guess is to some degree out of boredom. I know Henry Gallin and Mike Glick personally and am reaching out to them today for the first time since seeing the announcement this morning. But as I speak to more and more people, the word “Experience” (not to be confused with grey hair [although as we know while women have similar experience most choose to not let the grey hair show] is more and more important (Disclaimer: This is not a sexist comment; just reality!). I can related to this perfectly as I’ve also been through a number of real estate cycles and a several times in my life made my living on workouts, distressed situations and, to steal a line from my friend Bob Barclay’s firm, North American Realty Advisors, “turning a sow’s ear into a silk purse.” But even for those with experience, and while some issues and conditions resemble past downturns to some degree, this time it’s different. Very!
Working to work this morning I realized that the holiday season is truly over as I watched the now brittle Christmas trees being dragged out to the sidewalks of New York for pickup and, I assume, recycling. But that’s not the only sign. People have come back from their holidays with vengeance. I sense a more than normal energy in business; a feeling that if we work harder we will not only keep our jobs but somehow can make things happen where some say ‘we need to wait this thing out.’ Tim Scott, a good friend and active residential real estate broker in Manhattan was telling me recently of some startling deals that have fallen apart, with substantial ‘cash money’ (as my grandfather used to call it) left on the table. But, he also reports that there’s a lot of activity with people looking at apartments and buildings although there is a sense that there are ‘deals to be had.’ But whether it be an apartment, a working loft or a building to me it all boils down to how motivated either the seller or the buyer is. On March 24th (my mothers birthday) I’m going to be moderating a panel at the iGlobalForum 2nd annual real estate private equity summit in New York. My panel is titled: VALUATION AND PRICING STRATEGIES FOR DISTRESSED ASSETS: The RTC Redux? I’m now seeking out a representative from each of the buy/sell/hold contingents to join me in a dialogue (or debate) on this very subject, which I expect will be supported by someone from the valuation community as well. It should be a lively exchange of ideas. So now, to conclude with another quote from David Snow at PERE: “…as the years go by, expect to see the 2005, 2006 and 2007 vintage years put blemishes on the overall track record of private equity real estate. As is the case with most long-term asset classes, vintage years directly before recessions tend to perform poorly, while vintage years during and directly after recessions tend to be great. Given the depth of the current crisis, astute LPs are right to be eager about the 2009 and 2010 vintage years, even though the capital has yet to be deployed. (SF Note: Not only not yet deployed but in many cases not even raised yet…another challenge we are curious to see play out).
Have a good weekend!
Where I'll be:
Jan. 13-14: Cleveland, OH
Jan. 16-18: Ormond Beach, FL for the first 'annual' Felix Family Birthday Celebration
Jan. 28: Washington, DC
Feb. 17: Atlanta, GA
Feb. 18: Raleigh, NC
Feb. 19: Chapel Hill, NC to attend the Kennan-Flagler Center for Real Estate Development’s Annual Conference and Real Estate Challenge Case Competition.
Mar. 10-13: Cannes to attend MIPIM, host the second annual MIPIM Summit TV show and attend INREV's Annual General Meeting.
Mar.24: New York to moderate a panel at the IGlobal Forum Real Estate Private Equity Summit
Mar. 25-26: Washington DC to attend PREA's Spring Conference
April 1: Champaign-Urbana, IL to attend a very special music recital
Apr. 24: New York, Madison Square Garden to watch Syracuse beat St. Johns (College Basketball).
These are my personal views and not that of my employer.
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