Friday, March 18, 2011

Don't confront me with my failures as I had not forgotten them.

This past Monday IPD (Investment Property Databank) held their US Quarterly Results (2010Q4) event in New York at one of the coolest and most functional venues I've been at in a long time-NASDAQ MarketSite overlooking Times Square (see photo below).

Steve Cochrane of Moody' Analytics, mentioned some of their findings:

·      Job growth will both accelerate and expand over a wider range of industries.
·      Businesses are much more upbeat-sentiment seems to be improving.
·      De-leveraging is in full swing.
o   Household liabilities have fallen by $930Mn since peaking two years ago.
o   Credit spigot is opening for both households and small businesses.
o   No major markets, other than Las Vegas, Phoenix and possibly Miami, are in recession.
o   The only states still in recession are Nevada and Mississippi.
o   The strongest markets now are: Boston, Washington, Dallas, Seattle, San Jose.
o   The market is improving but not pulling along as many properties.

·      Top performers by property type:
1.   Retail: Super-regional centers
2.   Office: CBD
3.   Apartment: Garden
4.   Industrial: Warehouse and Flex space.     
Bob White (RCA): “Competition will heat up for leasing space in class B & C buildings bought at discount”.

David Brooks, Op-Ed Columnist for the New York Times, was the opening keynote speaker at the PREA Conference this week in Washington, DC.  I’m hardly political and don’t even know on which side of the fence Brooks resides but I like him. 

 Here are a few of my takeaways:

·      65% of Americans say that America is in decline.
·      People want change but they can’t find the type of change they’re willing to accept.
·      In 80 years, Obama will be the unit of measurement for self-confidence.
·      The Tea Party came in and used Abbey Hoffman means to achieve Norman Rockwell ends. (Abbot Howard "Abbie" Hoffman (November 30, 1936 – April 12, 1989) was an American social and political activist who co-founded the Youth International Party ("Yippies").  Norman Percevel Rockwell (February 3, 1894 – November 8, 1978) was a 20th-century American painter and illustrator. His works enjoy a broad popular appeal in the United States, where Rockwell is most famous for the cover illustrations of everyday life scenarios he created for The Saturday Evening Post magazine for more than four decades.
·      One way to induce humility is to write a column for the New York Times
·      We live in an overconfident society
·      Most things are about character and values and not about legislative shifts.
·      Humility:  You have to admit how much you don’t know.
·      Beware of your own weaknesses.

On the last item.  I’ve been aware of my own weaknesses for many years.   As Jackson Browne says in one of my favorite of his songs, These Days,  “Don’t confront me with my failures for I had not forgotten them.” With each chapter in my career I learn about new weaknesses but then again I take with me some strengths that I’ve previously developed.  It’s all about evolving as a person isn’t it?

I work in an industry craving improvement.  A sign? There were 850 people at the Mandarin Oriental Hotel in Washington, DC this past week for the PREA Conference.  850!  I believe that is a record.  Another record, although I didn’t officially take attendance was the number of placement agents that were there.  Is that a direct indicator that things are normalizing to what they were?  On that subject, over the past 18 months there has been a lot of talk about “Lesson’s Learned.”  I have heard that mentioned by panelists almost as much as I’ve heard the dreaded “Extend and Pretend.”  From what I saw and heard this week, combined with what I’m seeing and hearing in general, a number of the “Lessons Learned” have already been forgotten like some formulas that you had to memorize in school just to be able to pass an exam.

I was standing around chatting with some true industry veterans.  They read this column and know who they are so I don’t want to give them a swellhead by referring to them as anything more….but they are.   There was consensus that one of the biggest lessons ‘not learned’ is the idea of following the crowd.  Sure, one of the alignments that fund managers pursue is to align their strategy with the wants and needs of investors (and consultants).  I guess that’s the simplest rule for a successful business:  give the customer what they want and keep them satisfied.  Of course, the key alignment is the alignment of financial interests between investors and managers (and amongst investors and then we get into the subject of club deals but I'll leave that for another day).  

But isn’t one of the key lessons that we’re supposed to have learned discipline?  Remember the kitten that jumped up on the stove and burned its paw:  it never, ever did that again.  I think, one of the things that we should have learned, and this holds true for all things in life, is that if something seems too good to be true, it probably, or at least may not, be true.  We won’t know whether the investment decisions being today are good ones until a few years down the road and my crystal ball is as cloudy as yours.  But, distress cannot be cured overnight and maybe the fact that some prime properties in prime cities are getting 35 bids should be a orange or amber alert (The United States government' national threat level is Elevated, or Yellow and for all domestic and international flights, the U.S. threat level is High, or Orange [which it’s been since November 26, 2008]).  Another topic for a discussion at cocktail time.

Things are not back to the way they were in 2006/7 (and part of ’08) but it’s sure interesting to see into what strategies investors are putting their money. How much of it is ‘betting with the house.”   And, who is really behind those recommendations? Regardless, I believe that when we look back 2011 is going to be seen as an historic year in the commercial/institutional real estate world. 

So, that’s my commentary.  Here is some real information from Real Capital Analytics

·      Commercial property sales in February increased by 45% from one year earlier, slightly slower than the 56% year-over-year gain recorded in January.
·      In the first two months of the year, sales volume has topped $17.6 billion, with the office and retail sectors recording the greatest increases in activity.
·      Across all property types, cap rates remained relatively unchanged from January to February. Alongside of these results, other metrics presage a continuation of the improving trends in the investment markets.
·      New property offerings exceeding $18.0 billion in February reached their highest monthly level since October 2008.
·      Asking prices of these new offerings appear to be roughly in line with recent sales trends, indicating sellers are both motivated and realistic.
·      The closing of the pricing gap between buyers and sellers is reflected in rising sales volumes and a surge in pending transactions.
·      At the end of February, at least $22.5 billion of transactions were reported in contract in addition to Blackstone's pending $9.4 billion acquisition of Centro Properties' US shopping center portfolio and the even larger merger between AMB and Prologis.

Internships/Jobs:  Like many of you, I’ve always made time to talk with people who are looking to get into the real estate industry, get back into it or are simply looking for their next job.  Most of us have been there before.  I’ve met some very talented people in the past couple of months.  Some are in real estate MBA programs and are looking for a summer internship.  If your company has any openings for summer interns or are looking to fill a position, please let me know, as I may be able to steer a good candidate your way.  There is no fee involved in this.  However, if something works out you can buy me a nice glass of wine from the Napa Valley somewhere on the road.  Thanks.  We’re all in this together.

Congratulations to my friend, Jim Valente who recently joined IPD as Director of Performance and Risk Analysis.

Word of the week: Trifercation

On the road....

Mar. 27-29:  Austin to attend the TEXPERS conference.

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; Peter Lewis, Real Estate Resource Group.

Apr. 7-8:  Villanova, PA to serve as a judge for the DiLella Center for Real Estate, Villanova Real Estate Challenge.

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.

May 16-20:  New York

June 6-10: London to moderate a panel at the PERE Forum-Europe and have some other meetings.

Photo: Taken from the IPD event at NASDAQ MarketSite in Times Square, New York.

These are my views and not that of my employer.

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