Thursday, June 11, 2009

On the Road with Steve Felix

Used to be that when real estate people got together they were talking about deals being done and the occasional “Remember that deal we did together in 1982?” But now it’s about deals yet to come, opportunities anticipated and capital markets open for business. No matter who I talk to, and I’m certain it’s the same with you, people are just not sure what’s going to happen and when. Many feel that the big stress in commercial real estate industry has not yet surfaced but maybe, in the U.S. anyway, our government will realize that they have the capability, nay the obligation, to stick their noses into our sector and force the use of some tools that will prevent a different kind of debacle than we saw in the RTC days. If the government can doll out gazillions of dollars to guys in Detroit who have been building crappy cars, paying $65/hour and wallowing in self despair, how about us who have been caught in both a credit crunch and a vast economic downturn that is eroding rental income and occupancies (not to mention buying and selling of building). Don’t we deserve a break?

RCA’s Global Capital Trends Report, released today offers this overview of the industry:

GLOBAL SALES HIT BOTTOM: No Rebound, but Little Room Left to Fall
“Global transaction volume continues at a remarkably sluggish rate—and that is good news. Although Q2’09 sales are now estimated at $48.6 b worldwide, a 67 % year-over-year drop, the decline from Q1 volume could be as little as 5%, indicating a plateau has been reached, although there is no recovery in sight. Quarterly volume projected for the Americas is almost negligible at $8 b, a 6% consecutive drop but an 83 % fall yoy. EMEA is likely to take the most dramatic hit from the first quarter, down 24 % at $17.3 b and 71 % yoy. But with Australia, Japan and China beginning to stabilize, Asia Pacific sales are expected to be positive with an 18 % gain on the prior quarter at $23.3 b. That’s nearly half of estimated global volume and marks Asia Pacific’s first quarterly lead in sales worldwide—even as the Americas accounted for just one-sixth of that volume.”

This is pretty sobering stuff for the commercial real estate world and while RCA’s information is “spot on”, as my London colleagues say, a lot of what is going on is behind the scenes, in the offices of investment managers and pension funds, endowments and foundations who have moved into M.O.’s that may have never before been required. And, it’s the results of those evaluations, discussions, debates and decisions that will result in some of the opportunities that, well, opportunisitic investors are looking for. But from what I hear, there’s still a ways to go and that doesn’t even begin to address the availability of a capital.

And here are a few takeaways from the PERE Forum/Europe:
There are reasons to be cheerful: Citi’s Roger Orf said property is bombed out, investors are “shell shocked” and times like these can ”try one’s soul”, but he also pointed to some “silver linings”.
Green shoots in the capital markets: Some capital market events in the UK are helping confidence to grow.
LPs need to be leaders too: It is easy to bash GPs at the moment, but LPs should shoulder some responsibility to be more pro-active in these difficult times.

Well, this was a pretty big week for me. I became a grandfather for the first time on Wednesday when my grandson was born. It’s an unbelievable feeling: Ob-la-di, Ob-la-da life goes on! I also had two other really good things happen and was reminded that they come in threes. And so they did.

Thanks to the law firm Greenberg Traurig who invited me to their reception at the Rockefeller Center Café (down on the skating rink level). They had a great turnout of both members of their firm and lots of commercial real estate people from around the country talking to each other about how difficult things are. But I got introduced to someone who has been reading this column and has enjoyed it and that kind of stuff means a lot to me.

Restaurant of the week: Tia Pol, 205 10th Ave (bet. 22 & 23rd streets), NY. (212) 675-8805. It's a noisy but very cool tapas place with really great dishes. If you make a reservation you'll sit at a communal table. If you go on the early side, you'll get a seat at the bar or one of the tables.

Prometheus Fountain, Plaza, Rockefeller Center

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

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