Friday, March 27, 2009

On the Road at PREA

Washington, DC, like Paris, is a more moving site after dark. The lighting on the major monuments brings a feeling of awe of what people like Lincoln, Jefferson and Washington accomplished. The glow off the dome of the Capitol building is one of the most recognizable sites in America, nay, the world. While we just missed peak Cherry Blossom time, PREA (Pension Real Estate Association) held it’s spring conference this week which attracted more pension funds than it had in a number of years. To me this is a sign of pension funds looking to gain insight from their peers and get a better handle about how they and their managers are seeing the future.

The first day of the conference started out with an excellent presentation by Martin Wolf, a world-renowned expert on the global economy. He said that for an economist, this is the most exciting time in his life. Whatever turns you on I guess ☺ And, like most economists today, was reluctant to make a definite prediction about the future although he did present three possible scenarios and said that one would be more likely than the others. He called that one “Muddling Through: an extended U-shaped recession”.

Some of things I heard at PREA:

1. What investors wanted was not what they should have wanted.
2. Salvation: Write-down’s being taken fast will free up investment capital from institutional investors.
3. The financial sector will always give you what you ask for…. you just have to be sure you know what they’re giving you.
4. It’s disturbing how the U.S. is tracking Japan just 10 years later.
5. 2009 will be a really terrible year and nothing we do can change that.
6. Risk is something we have not paid nearly enough attention to-we were pushed to achieve returns (Foundation)
7. We were not prepared for a time when capital calls would continue and distributions would completely dry up.
8. My job is to keep my board calm (State Pension Fund)
9. Right now almost every type of business has one issue-liquidity.
10. By and large, most commercial real estate loans are pretty good loans where the underlying assets have good intrinsic value.
11. Things are never as good as they seem when they’re good and not as bad as they seem when they’re bad.
12. We need supervision and oversight that is real. There was no one focused on the aggregation of risk that was systematically connected.
13. A huge component of the CMBS market is that it attracted capital that thought it was taking no risk.
14. There is no such thing as a bad asset; just bad pricing.
15. It will be interesting to see how the government coaches/coaxes the financial sector to be willing sellers.
16. If TALF doesn’t work I’d get the private sector out of it and just create a government entity to buy the problem assets.
17. One problem is that across the government we’re asking people to do jobs they’ve never done before.
18. What we also learned from the RTC is the differential between losing 1x and 3x is servicing.

And, here are the results of some of the Quick-Talley Audience Q&A that was ably put together and moderated by Asieh Mansour of RREEF and Mary Ludgin of Heitman:

Quick-Talley Audience Q&A
1. NPI (NCREIF) Property Index total Return in 2009: (-20%)-(-15%): 44%
2. 2009 Private Equity Real Estate Portfolio Returns: (-19%)-(-10%): 38%
3. Best performing property type in 2009: Apt: 74%
4. Worst performing property type in 2009: Hotel: 45%
5. Given current market conditions which private equity real estate strategy makes the most sense in 2009?
a. Opportunistic: 32%
b. None-waiting for the dust to settle: 30%
c. Core: 26%
d. Value-add: 12%
6. Which debt strategy makes the most sense today?
a. Acquisition of distressed loans: 28%
b. Acquisition of performing loans: 18%
c. Origination: 14%
d. CMBS: 7%
e. All of the above: 24%
7. Most important risk factor you need to manage:
a. Debt rollover: 45%
b. Property management and leasing: 26%
8. Biggest risk facing private equity real estate today:
a. Availability of debt upon rollover: 515
b. Deeper and longer recession: 29%

General Conference Comment: I still see too many people at conferences sitting at meal tables with their colleagues. Perhaps it’s just me but I see conference attendance as a way to meet new people so I’ve coached clients over the years to separate themselves and then later come together and compare notes on who they each met.

It was great to see an old friend, Milton Cooper, founder with the late Marty Kimmel of Kimco on a panel. Milton is as sharp and insightful as ever in his eighth decade.

Publishing Scam Alert: I’ve been notified by two of my industry friends who warn about staying away from ACQ Finance Magazine.

Thanks to the generosity of Fred Gortner of Paladin Realty Partners I saw the Allman Brothers 40th Anniversary (to the day) show last night. In the words of a close friend who has seen the Allmans countless times over the years, this show was “monumental.” In their annual residency at the newly renovated Beacon Theatre in NY the band usually invites a guest artist to join them but last night it was just the band and you could see and feel the joy and freedom on the stage. It was a thrill to be there although I was dragging a little today after standing for the whole 3 ½ hour show along with the entire audience. Thanks again Brother Fred.

Where I'll be:

Apr. 10-11: New York to see Umphrey’s McGee at the Nokia Theatre (a great venue)
April 23-25: Athens, Greece for INREV’s Annual General Meeting and Conference
May 14-16: North Palm Beach, FL to attend the annual Homer Hoyt Institute and Weimer School sessions with some of the industry’s leading academics.

Photo: Jefferson Memorial from my hotel room at sunrise on Wednesday.

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

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