Saturday, November 15, 2008

Amsterdam/The Hague

I was in Amsterdam this week for the INREV Investor Platform and Committee Meetings (INREV=European Association for Investment in Non-Listed Real Estate Vehicles). There were about 80 or so in attendance, a good percentage European pension funds. It’s possible that I was the only American there. Here are some tidbits:

1. Investors more interested in manager out-performance and corporate governance.
2. Valuation problems raised as a major issue
3. Investors putting more emphasis on longer/more extensive due diligence before committing to a fund.
4. What’s in?(vs. what’s out?)
o Veteran fund managers with more cyclical experience
o Capital raising with loan facility in place
o Preservation of income
o Blind pool funds vs. seeded portfolios
o Private fund managers vs. listed fund managers
5. Themes in the market:
o Problems not limited to higher risk/return funds.
o Local partner model causes worries.
o Investors in charge or investors backing off?
5. “Governance has never been such a hot topic.”
i. When the markets are bad, poor practicing governance will show up (Quote of the week: ‘It’s only when the tide goes out that you’ll see who is not wearing any swimming trunks.’)

(Note: Interesting how much things have changed in a relatively short time isn’t it?)

Being in The Hague again reminded me how much more considerate and polite the people who live in that town are with each other and with visitors (I also saw that retail sales are down considerably there as well). That’s not to say that the tram drivers aren’t a bit gruff but I think that may be part of the profile of mass transit people worldwide. However, it is nice to be in that kind of environment and reminds me of how things can be when people just think of the other person a little bit more rather than just about themselves (p.s. I also paid a surprise visit on my favorite European dog, Joup at the REP offices). I don’t know if this financial meltdown will result in a change in behavior to a ‘kinder and gentler’ America reminiscent of the intense nationalism that was shown in America immediately following September 11 (which lasted about four minutes) but perhaps something good does come out of difficult times. We can hope, can’t we?

(Deleted here was a rant on my former friend from college, political analyst Peggy Noonan).

We are living through heroic times. Because we are optimists we continue to believe that each week we will be told that we’ve hit the bottom thus things will be turning up. But each week the bottom keeps getting deeper and further out. As SNL comedienne Gilda Radner used to say in one of her many characters, “If it’s not one thing, it’s another.” And it has never been truer. Some people feel that bad things come in threes but we’re way past three aren’t we? Industry conferences are being cancelled. Attendance at stalwart shows is down. Travel is being restricted and people are staying closer to home. But just as the advertising industry adage about ‘When you can least afford to advertise is the time you need to most’ goes, so it is in the institutional real estate world where managers, as fiduciaries for pension funds, endowments and foundations need to visit their investors to answer questions, to provide comfort and to tell investors what they’re doing and what they’re planning to do to preserve and protect the assets the fund they’re invested in own. From what I hear, there is still capital being raised as in some ways life goes on; but it’s a changed life as we knew it to be and I don’t think there’s anyone who can say with certainty that they know what tomorrow will bring.

The following are some of my colleague Zack Streit’s notes from Joe LaVorgna’s, Deutsche Bank’s Chief US Economist, address at a New York University’s Capital Conference this week:

1. This recession will likely not be deeper than average recessions but the recovery will be atypically slow, because “it’s hard to start the leverage engine”
2. Housing has already corrected somewhat
3. Home-owner debt has dropped somewhat due to the stimulus earlier this year, but this is expected to spike back up as home prices continue to fall
4. Secretary Paulson is wrong not to buy troubled assets with TARP because:
a. Buying distressed assets increases liquidity
b. The best ways to stimulate the economy are as follows:
i. Giving money to states, to avoid states enacting pro-cyclical legislation like tax raises
ii. Giving money to households, as energy prices, which have pulled back, will no longer impede spending
5. Sequence of recovery
a. The money market for term debt will recover first….
b. ….then high yield debt spreads will tighten, probably in 2Q09….
c. ….tighter credit spreads could result in increased mortgage availability and spur the RMBS market….
d. ….housing will recover as a result of increased mortgage availability….
e. ….then the equity market will recover and likely to be domestic-led.

There was a wonderful sign around the lighted magnifier mirror in my hotel room at the Schiller Hotel in Amsterdam this week: “I have seen a lot of faces and I have never seen a smiling face that was not beautiful.” My brother Jay and I were talking about that, sort of, last weekend-how powerful a smile is to your overall attitude. And it’s something I’ve noticed is missing from all too many people around the world and especially in the U.S. But it was missing even when economies were high-flying. I’m not suggesting a shit-eating grin or a phony toothy smile, but I agree with the message in the mirror wholeheartedly. Try a smile.

Something I learned this week: Believe it or not, you can get a good manicure at the Wal-Mart in Ormond Beach, FL. Not sure how many other stores have this service but I was very pleasantly surprised!

Thanks to those of you who have passed this column along to your friends as I work on rebuilding the community. I’ve been getting notes from new readers as well. It feels great.

Happy Thanksgiving to the Americans who read this column. While things are difficult we still have a lot to be grateful for: remember it’s the small things that really matter.

All the Europeans I talked with this week share the energy and hope for America and the world. “Barry” Obama is a big hit and has already changed the way the U.S. is looked at. We are respected for electing this president and, while everyone realizes that things can’t be turned around overnight, there is belief that it’s a new start. It almost feels good to be an American in Europe again. Now we just need to stand behind him and his new administration. Can we make a difference? Yes we can! GOBAMA!

Restaurant of the week: Little V, Rabbijn Maarssenplein 21, The Hague +31 070 392 1230. Classy Vietnamese Cuisine.

One more restaurant: Casa Caroni, Gebouw 1 Jagerije, The Hague. Authentic Italian in a setting suitable for Billy Joel's "Scenes from an Italian Restaurant." +31 070 346 0370

Family Christmas Gift Suggestion: Hero Dragon- a family game that helps parents and children communicate about difficult subjects using imagination.

Boutique hotel of the week: Palais Hotel, Molenstraat 26, The Hague. +31 070 362 46 21

Where I'll be:

Nov. 24-25: New York
Nov. 26-12/1: Montreal
Dec. 1-5: New York
Dec. 2 (t) Toronto to attend Global Property Market Conference
Dec. 8-12: London and to moderate a panel at the Reuters Real Estate Global Property Outlook 2009 on the 9th (Invitation only).
Dec. 15-19: New York
Dec. 22-Jan. 2, 2009: Montreal
Feb. 19-20, 2009: Chapel Hill, NC to attend the Kenan-Flagler Center for Real Estate Development’s Annual Conference and Real Estate Challenge Case Competition.

Thanks for reading my blog.
Many of you know that my life is built on people, on community, on collaboration and on sharing. This platform gives us all a chance to connect and reconnect. I am grateful for your support, suggestions and contributions. I sincerely appreciate it.


Photo: Fishing Pier, Flagler Beach, FL

Note: These are my personal views and not that of my employer.

Thursday, November 13, 2008

Be The Change

I have a favor to ask you: Each week I learn that many people who formerly read my column, "On the Road with Steve Felix" do not know that I'm writing this blog. If you know other people who you think would like to receive this, please send them this link where they can subscribe. I appreciate it. The more, the merrier.

I attended the PERE Forum in NY on Wednesday and Thursday. There was a very strong turnout and interestingly not of the usual suspects. I don't know about you but when I attend an event, whether I'm moderating a panel or not, I hope only to come away with one good new contact and it may not even be someone who I can directly do business with. Well, when you keep your expectations low, you're quite frequently pleasantly surprised and that was the case this week. I've picked a few of the comments made to include in the column this week but I have some good notes which I'll be happy to send you; just email me and say PERE Notes in the subject box (

Here we go:

36. There is money getting funded to some things now:
a. Asia
b. Distressed Strategies
i. Debt
ii. Mezz
iii. U.S.
iv. Global
c. There’s a new focus on multi-family

37. It’s surprising how quickly the SWF’s (Sovereign Wealth Funds) have retreated.

34. Investors will ultimately reward hard working fund managers who remained transparent and held their organizations together to complete the task at hand.

31. I’m going back to core-plus: income, stable assets and low leverage. Back to the future!

29. Is there enough capital in the world to address all the secondaries that will trade?

26. For most vintage 05-07 funds LP’s should be happy to get their money back; hitting a pref will be heroic.

24. LP’s are going to start rereading their partnership agreements. The lack of uniformity is likely to give rise to more standardized documents in the future.

20. There’s no need to act quickly-this is a bottom you can afford to miss.

19. Fund managers have to resist the urge to throw good money after bad; injecting equity into deals that you’ll lose anyway is a slippery slope and will be much harder to figure.

14. DSC (Debt Service Coverage) ratios were always meant to be whole numbers greater than 1.0.

PERE used a new technology for audience reponse. The handheld device that everyone got not only allowed you to vote on certain questions posed to the audience but also allowed you to text message questions to a screen in front of the moderator of the panel. As a frequent moderator, this technology is fab. It eliminates the need for people to raise their hands (although some did that as well) and ask a question publicly. The group that provided the service is also the group that invented the technology. If you are going to run a conference and are thinking of something like this i encourage you to contact these guys (who happen to be HQ'd in the UK): iml. It is very, very cool-and effective.

I got a sneak peak of the enhancements to a portfolio managment and analysis software that I've been a fan of for many years. It was very cool. Anyway, it's good to see people in our industry are still pushing the technology envelope; it's always been a given that CRE is the slowest industry to adopt technology and doing things differently but we're getting there: Rissnet, Reuters Real Estate, Situs, CREOpoint, Resolve Technology, Realwired, REBackOffice, Real Capital Markets, RCA and others are all bringing us tools and services to make us more productive, more informed, more efficient and more successful. It seems to me that especially in challenging times like these we should be taking advantage or at least trying new tools. I know budgets are getting tightened but sometimes we can be penny-wise and pound foolish. Check out what these folks are doing, if only so you know.

The photo above is from last Friday night in Asbury Park, NJ. My old band-mate "Puggy" DeRosa has been doing a Neil Diamond tribute show in dinner-theatres across NJ. This was my first time seeing the show. He's great. He also did a couple of songs that we used to do as a band. At this show there were a good number of our friends from the old days. This is Tommy Bruno, the drummer from our old band "Everyone" (hey, it was the 60's!) and me joining Puggy for 'Brown Eyed Girl' (la la la la la la). Asbury Park had been a run down city for years and it's finally seeing the light of day. "The Circuit" where people used to cruise and the site of the "Hullabaloo" club which featured guys like Bobby Banidera (now a member of Bon Jovi), Bruce Springsteen and, yes, my first band "The Better Half" playing 55 minutes on and 5 minutes off every hour with a dancing drum beat between songs played is there but different. Tim McCloone's Supper Club ( where Puggy performed is a great place to enjoy some top entertainment (Tim himself is an accomplished keyboardist whose seasonal group, Holiday Express does some great charitable work via it's rocking performances.

The photo at the right is the Halloween costume of a good college friend whose name I will not mention for fear for his life. He has been a loyal reader of my stuff since the beginning and most week's he'll write me some wise-ass comment that makes me smile no matter where I am in the world. He and I used to play softball in Bayonne (NJ) Park and I'd eat over at his house on a regular basis. His mom and dad always made me feel part of the family-meaning they busted my chops just like they did with their own sons.

I don't know about you but since the election, notwithstanding that there are still a couple or three elections still up in the air, it feels different in America. I'm not talking about what I hear or see on TV, partially because I hardly watch TV. What I'm talking about is something that resembles a collective sigh, a sense of relief that, even with the serious financial stress we're all experiencing, we are going to get a chance to experience and participate in a dramatic change. We've all had a wake up call, like being doused with ice water while still in sleepy-time dreamland. It's not fun and for the first time in my lifetime, the problems are not limited to one segment of the population; correction, the world. And, as much as we might try, we cannot go back and change anything that's been done; we can only learn from it and do things differently going forward. The future is now; we can seize the moment and "be the change we wish to see in the world."

Where I'll be:

Nov. 14-16: Ormond Beach, FL with my brother Jay to visit our Dad.
Nov. 18-21: The Netherlands
Nov. 19: Amsterdam for INREV's Investor Platform and Committee Meetings.
Nov. 26-12/1: Montreal
Dec. 1-5: New York
Dec. 8-12: London and to moderate a panel at the Reuters Real Estate Global Property Outlook 2009 on the 9th (Invitation only).
Dec. 15-19: New York
Dec. 22-Jan. 2, 2009: Montreal
Feb. 19-20, 2009: Chapel Hill, NC to attend the Kenan-Flagler Center for Real Estate Development’s Annual Conference and Real Estate Challenge Case Competition.

Thanks for reading my blog.
Many of you know that my life is built on people, on community, on collaboration and on sharing. This platform gives us all a chance to connect and reconnect. I am grateful for your support, suggestions and contributions. Thanks a lot.


Note: These are my personal views and not that of my employer.

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