Friday, March 11, 2011

When we are no longer able to change a situation, we are challenged to change ourselves

Thanks to the gracious invitation of David Funk, Director, Program in Real Estate, Cornell University, last night I attended one of their Real Estate Council events at the, you guessed it, Cornell Club in Manhattan. The first guy I met getting off the elevator was Pike Oliver, Senior Lecturer and person responsible for industry outreach for the Cornell Program in Real Estate. Pike and I had not met before but, as he said, “I feel like I know you as I’ve been reading your column for a number of years.” I recognized his name immediately as he had written me a few times over the years about something I had published. Both he and David are very passionate about the industry and great advocates of their students.

Of the 140 people there my guess is that about half were either current students in the program or alum. The balance comprised a diverse group of New York area commercial real estate professionals. As three of the four panelists work for public companies no media was invited. But I don’t consider myself or OTR media so here are some of the things I heard:

• New York City office rents increased by 5% in the last month.

• “New York is a world-class city in every sense except the age of its office stock.

• New jobs in New York are coming from non-traditional sources (i.e. Li & Fund, a Hong Kong based group managing supply chains for major brands and retailers worldwide who just leased 500,000 square feet in the Empire State Building).

• Bloomberg is the fastest growing company in New York.

• Construction lenders are simply not going to start giving construction loans for spec development.

• The recapitalization of capital stacks of assets is a process that could take as much as seven years to clear.

• People are waiting for a wave of distress but it may not happen.

• Transparency of financial information is more important than ever.

Well, his week I finally figured out what’s up with the commercial/institutional real estate industry: we’re going through a serious identity crisis or perhaps a mid-life crisis (although I’m measuring that by the chronology of my own mid-life). Why do I feel that? Well, in recent weeks, I’ve been listening to people who represent a diverse swath of our industry and, well, it sounds to me like there is a lot of uncertainty.

• The deal marketplace is still in flux regardless of the ‘core’ deals being transacted at dangerously low cap rates and dangerously high prices.

• The flow of capital back into the real estate asset class by pension funds, endowments and foundations is herky-jerky and not anywhere near reliable.

• Some people are talking as if we’re out of the woods. But we’re not.

• Many real estate investment management firms are trying to figure out whether to hire people back or wait a little longer.

• Some of the strategies being offered to institutional investors resemble a ‘let’s throw it against the wall and see what sticks’ philosophy or ‘real estate strategy du jour.’

But beyond specifics, there’s just this feeling I have that the period we’re living through is one of monumental change: AREA selling a 35% interest to the National Australia Bank (which just last year bought global REIT manager Presima from Montreal-based Caisse de Depot); KKR has hired someone to move them into the real estate private equity investment space (given that they’re pretty smart guys, I guess this could be a sign that real estate is ‘back in vogue?’); a company I can’t name is getting ready to launch a seriously sized fund to buy trophy shopping malls in the U.S. And other stuff that just suggests a great uncertainty or perhaps evolution in many ways. I guess time will tell, eh?

Lastly, tomorrow night a friend got me a ticket (well, it’s going to cost me $160 but by today’s concert standards that’s not too bad) to see the Allman Brothers who are celebrating the 40th anniversary of their legendary album, “Live at Fillmore East.” I didn’t get to see that show although I did get to see a good number of shows in that great (and small…2700 seats) venue. As I think about this, here are some of the shows that I saw (I know there are more but I just don’t or can’t remember them right now): Procol Harum, Seals & Croft, Voices of East Harlem, Joe Cocker & The Grease Band, Crosby, Stills, Nash & Young, The Chambers Brothers, Lighthouse, The Grateful Dead, The Band, Jimi Hendrix, Delaney & Bonnie & Friends (with Eric Clapton), King Crimson (original band), Fleetwood Mac (original band), Sweetwater, Cold Blood, Brethren, Richie Havens, Livingston Taylor (James’ brother), Paul Butterfield Blues Band, Traffic, Blue Cheer, Iron Butterfly, Taj Mahal, Spencer Davis Group (w/Steve Winwood), Savoy Brown, Renaissance, Vanilla Fudge, Pacific Gas & Electric, Electric Flag, Quicksilver, Lee Michaels, Sea Train, Country Joe & The Fish, Ten Years After, Cat Mother & The All-Night News Boys, Poco, Mott the Hoople, The Byrds, Raven, Rhinoceros, Illinois Speed Press, Sons of Champlain.

It was a great time to have grown up. Every once in a while, I think about how lucky I've been to have grown up in an era where we had both The Beatles and The Internet.

Restaurant of the week: Spasso, 551 Hudson Street, New York, NY 10014 (212) 858-3838 ‎. This place has been only open a couple of months but has already hit its stride. It’s a place you’ll like the minute you walk in as the staff is friendly (even to those they’ve never met before), the design is cool and the food is really good.

On the road....

Mar. 11-15: New York
Mar. 16-17: Washington, DC for the PREA Spring Conference
Mar. 21-25: Northern California
Mar. 30: New York to attend IMN's inaugural Real Estate Investment & Search Consultants Congress and moderate a panel called “REAL ESTATE ASSET ALLOCATION: WHAT IS YOUR CURRENT VIEW? IS IT TIME TO INCREASE OR DECREASE ALLOCATION? Esteemed panelists: Catherine Polleys, Principal, HEWITT ENNISKNUPP, INC.; Justin C. Mallis, Senior Research Analyst, SEGAL ADVISORS, INC; Martha S. Peyton, Managing Director - Global Real Estate, TIAA - CREF
Apr. 13-15: Venice, Italy to attend the INREV Annual General Meeting
May 12-14: North Palm Beach, FL for the annual meeting of the Homer Hoyt Fellows.
June 9-10: London to moderate a panel at the PERE Forum-Europe.

These are my views and not that of my employer.

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