Friday, December 10, 2010

On the road in Frankfurt

“So, what was the mood at the two real estate conferences you attended in Frankfurt this week, Steve?”  Well, while no one has actually asked me that question yet, I felt I needed to ask myself.  Festive: the Christmas feeling is powerfully alive. But, the mood at both the PERE Forum and the INREV Investor Platform/Committee Meetings, while fairly upbeat was clearly not overly optimistic. 

There were differing opinions as to where the institutional capital is going to come from in 2011 and there is no consensus that values have stabilized.  Like in the U.S. there is active bidding for premier core assets but not all major players will participate in those auctions.  There was a lot more mention of value-add opportunities being available here than in the U.S. and what opportunistic returns really mean anymore.  We are clearly living through a serious change in the global institutional real estate world and those who will be successful going forward are those that recognize that they have to make changes in the way they operate, underwrite, communicate, report, apply fees and every other aspect of the private equity real estate investment business. Investors are getting more demanding and have learned a lot of lessons.  Managers cannot afford to ignore any of these issues. If they do, they will not survive.

PERE attracted 90 delegates to it’s first European Forum and INREV 111 (40% increase from 2009).  But the mood?  In all my years in this great industry I have never heard and felt more uncertainty which isn’t really so surprising given how 2009 and 2010 have panned out.  So, what’s clear to me is that, well, nothing is clear.  Of course, there are the requisite number of ‘year end’ deals and many people are working frantically to conclude those (From what I heard, the sale of ING Real Estate or it’s component units is not one that will close by 12/31).   But, going into 2011, the year that we all hope will be demonstrably better than 2009 and 2010, it seems to me that it’s still more hope than promise. 

Here are a few “Notes & Quotes” from this week:
  • In 2000 there were 1000 Dutch pension funds; in 2010 there are 585.
  • “Investors should have more realistic return expectations”
  • “LP’s want access to low-leverage funds”
  • “Investors want to see managers with good ideas”
  • “We’re looking for real estate exposure, not operational exposure (manager risk) when making investment decisions.”
  • “Managers should be compensated for delivering real Alpha”
  •  “There have been intellectual analyses suggesting that the WFC was driven by a lack of regulations. A wave of regulation is coming towards the property industry”
  • INREV Challenge:  “Developing tools to get under the skin of the data.”
  • “There continues to be a need for improved fee transparency”
  • “Investors concerns continue in these areas: risk and debt managementalignmentmanager stabilityconflictsenvironmental & sustainability

I felt great to reconnect with many of my old European institutional real estate friends and make new friends at these events. People is really what it's all about anyway, isn't it?  

My flight from San Francisco to Frankfurt was on United.  Coach.  The service was a joke, truly.  The 13-hour return flight yesterday was on its Star Alliance partner, Lufthansa.  Lufthansa’s service level has always been head and shoulders above United but the glaring difference on this trip was so evident I felt I needed to mention it. At the essence, United does not exhibit that it cares one iota about it’s passengers in coach while Lufthansa, from the quality of the food, to the free alcoholic beverages (United now charges in coach), to the customer service attitude of it’s in-flight crew makes me wonder how these ‘alliances’ are supposed to work.  Shouldn’t there be some consistency in level of service in each cabin?  Or maybe it was just the flight I was on….although I don’t think so.  (BTW, my ticket: $960.  Had I bought business class at the same time on the same flight:  $6,000!  Absolutely ridiculous).

Hotel of the week: Best Western Plaza Hotel, Esslinger Stra├če 8, Frankfurt, Germany. Down a little side street, within walking distance of old town and the train station (and the Villa Kennedy where both the conferences I attended this week were held).  Villa Kennedy rooms were running around €280 a night and I stayed for €330 Euros for four nights….total!  The Best Western is a modest hotel and does not have a restaurant or a workout room.  But it does have clean rooms, fairly fast and free Internet and an extremely friendly and helpful staff.  My last night there I discovered that the counter just off the lobby is really a bar and ended up having one of the most enjoyable chats with four German hotel guests and the hotel’s assistant manager/bartender.  Keep it in mind!

Congratulations to Bart Coenraads who joined Aviva Investors as head of it’s Asian Real Estate Multi-Manager team.  Also congratulations to my colleague, Catriona Allen who in January becomes the Co-chair of INREV’s Research Committee. 

Photo:  Villa Kennedy, Frankfurt, Germany.  Happy holidays!

On the road....
Dec. 13-21:  New York
Dec. 20:  The second almost-annual end of year buy your own drink thing.  Pera Brasserie, Madison Avenue between 41 and 42.  6:30pm.  At least 47 people are expected.  
Dec. 16:  Boston
Jan.12-14:  Laguna Beach, CA to attend IMN’s Eighth Annual Winter Forum on Real Estate Opportunity & Private Fund Investing.
Jan. 24-28:  New York
Feb. 1-3:  Laguna Nigel to attend IREI’s Fifth Annual VIP Conference

These are my views and not that of my employer.  

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