On the Road

State of the Industry (from RCA Global Trends-April 2009):

The global slide in property acquisition in Q1’09 reached well beyond any adjustment for currency fluctuation. Worldwide sales volume and the number of trades plummeted to one-sixth their levels of two years ago and fell 73 % from Q1’08 to just $47 b and 1,014 properties in Q1’09. The broad drop in activity cut across all property types and just about every market. Compounding the drop in transactions is an astounding rise in properties that need to be recapitalized. New reports of defaulted mortgages and failed commercial property companies exceeded $55 b in Q1’09, bringing the total universe of property assets currently known to be in distress to $153 b. And, as Walter Cronkite used to end his broadcasts, “And that’s the way it is.” Sounds like there will be a lot of opportunities out there.

Big news this week, in addition to some senior level departures, is the bankruptcy filing of the second largest shopping mall owner, General Growth Properties. As a former long time shopping center industry guy this is a somewhat monumental event. However, it is probably the best thing that could happen right now given the circumstances. And while we may say that this could be a forerunner of things to come I’m not sure that it is…or at least at this scale. Looking out of my office window I see the building that was built as the W.T Grant HQ. W.T. Grant was the first national retailer to go out of business in my lifetime filing bankruptcy in 1976. When they went it seemed like anything could happen but over the years since then Chapter 11 filings have become while not commonplace at least more common. But seeing GGP go through this is still a little disturbing given that I’ve known some of their senior people over the years and always admired them.

This week some real estate group that I’ve never heard of first changed their conference venue from a hotel to the Internet and then canceled it altogether. On their website I couldn’t find a single person’s name behind the organization. I don’t know about you but I’m getting more and more skeptical about the web and who is doing what and whether the privacy issues that I’ve sort of ignored all along have some validity to them.

And speaking of the Internet, some of you have to be among the almost 16 million people that have viewed the video on YouTube with Susan Boyle singing for the show 'Britain's Got Talent.' For those of you who haven't watched it, please do. It is one of the most inspiring and emotional things I have ever seen. In a time of stress, strain and economic pain globally, this momentary glimpse of someone realizing their dream, through some sort of reality show, is, well, extremely special.

And while I’m on the subject of dreams how many of us have ever dreamed of doing something great? I know, you say, “What makes something great?” And of course you’re right because it’s different to every one of us who has thought about it. I’d guess that most thoughts of greatness might relate to a world changing discovery, like the Salk vaccine or the artificial heart and those certainly are great things and have not only changed our society but also saved lives. Or it could relate to sports, holding a sports record or winning a big game with a bottom of the ninth home run, or a goal that breaks a 0-0 soccer game or a 62-yard field goal with no time left on the clock. And those too are great things especially if one has dedicated their lives to sport. Or it could be creating a painting that is considered great by the art world, or even a more widespread audience. Most songwriters are hoping they’ll write one hit or great song which is why it’s so amazing that The Beatles have had so many songs that have become as recognizable as a country’s national anthem and have been the first words that some people have sung in English, even if they don’t know what the words mean. But greatness does not always or just have to be something big, something covered by the media or something that gets a statue erected in your honor. Greatness is really made up of little things, sometimes everyday things but more likely something done because one person cares about another person. It’s great things that are done where no one is looking for credit, not looking around to see if others have seen it but done just because it’s the right thing to do, it’s a good thing to do and it by doing it it makes you feel good.

Next week I'll report back to you about what I heard at the INREV conference in Athens. INREV, as many of you know, is the European Association for Non-Listed Real Estate Vehicles and many institutional investors will be in attendance.

Where I'll be:

April 23-25: Athens, Greece for INREV’s Annual General Meeting and Conference
Apr. 26-Apr. 30: Chicago to record my second CD of original music for the benefit of Keys-4-Kids.
May 1-12: New York
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.


If you’d like to reach me the best email address is (steve@simplicate.com).



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

On the Road-On Foot

There are clearly signs that it’s Spring. Easter and Passover. Flowers blooming and trees budding. Colorful fashions in designer and department store windows. But the most poignant sign for me is seeing the topsoil being spread and tamped down on the infields of the softball fields in New York’s backyard, Central Park. It’s not baseball, which I lost interest in many years ago when money became more important than team loyalty. But rather the going out and playing in the early evening or the Saturday or Sunday morning in Bayonne, NJ on an unlikely named team called The Al Slootsky Association(really!).

I haven’t seen any vacant retail space in NY that doesn’t have a sign saying “Prime Retail Space for Lease.” And I’m sure that they’re right; sort of like Prime Aged Beef, which I believe has to pass some kind of measure, similar to calling Champagne Champagne or Napa Valley wine. But if all these locations are so prime, why are they vacant? We all know that retailer failure is not necessarily related to the location. And in this day and age there are a lot more complicated contributing factors. But one thing to remember is that not all vacancies, whether it be retail or office mean that the landlord is not still collecting rent. That is until the tenant goes bankrupt. And, in this past Era of Excess a lot of retail landlords, both street, shopping center and mall, forgot (or never knew) the basic principals of how much in gross sales a certain type of retailer can afford to pay in rent, aka overhead. So, now that things have changed so dramatically it’ll be interesting to see if retail rents are brought more in line with those basic tenets.

Some things I heard or read this week:

1. The fiscal stimulus package is not a free lunch.
2. Big question: can the Fed withdraw its various liquidity measures early enough to avoid over-stimulating the economy, but late enough to allow a nascent economic recovery to take place?
3. Gold prices going up may indicate a fear of real depression.
4. Reality Check: Dateline Abruzzi, Italy: “But there were small signs of improvement. Five red and black espresso machines had arrived in the mess tent. Finally today we had a coffee” said a smiling Serena Tenina. “It might seem like nothing, but to me it’s at least a sign that things are moving forward.”

And here are some excerpts from an excellent op-ed piece by Sir Martin Sorrell in today’s Financial Times. While I don’t necessarily agree with everything he writes he offers some things to think about (and discuss):

• It must be said plainly that capitalism messed up – or, to be more precise, capitalists did. We – business, governments, consumers – submitted to excess; we got too greedy. Life was easy in the late 1990s and early 21st century.

• Just as business is poor at government, so government is feeble at running business.

• Countries previously viewed as suitable only for charity will become the new powerhouses. Africa, long seen as the continent of war, poverty and disease, will become a continent of opportunity.

• Conspicuous consumption will be frowned upon. Women will no longer buy a handbag as a mere badge of affluence. Men may be more self-conscious about extremely expensive cars. Luxury goods will still be with us but they will be judged by their authenticity and craftsmanship, not price tag.

• Democracies always have a propensity towards ugly protectionism in a recession. But the nihilistic voices raised against the disgraced masters of the universe will eventually cease. It is possible to imagine that one day investment bankers may again be welcome at dinner parties. It might take a little rebranding, though.

And some reminders sent to me by a new friend (who I’ve never met but is part of a small e-mail group set up by my friend in New Zealand, John Boyd:

8 Secrets of Happiness

1.Count your blessings: Write down once a week 3 or 4 things for which you are currently thankful from the mundane to the magnificent.
2.Practice acts of kindness - these should be random (let someone ahead of you in traffic) to the systematic - take an elderly neighbour's garbage in and out, volunteer to do some door knocking for the Salvos
3.Savour life's joys - pay close attention to momentary pleasures and wonders. Focus on the smell of a rose the beauty of a sunset. Take a mental photo to review in less happy times
4.Thank a mentor - if there is someone whom you owe a debt of
gratitude for guiding you at one of life's crossroads express your
appreciation in detail and in person.
5. Learn to forgive - let go of anger and resentment by writing a
letter of forgiveness to a person who has hurt or wronged you.
Inability to forgive is associated with persistent rumination,
forgiving allows you to move on.
6. Invest time and energy in family and friends - strong personal
relationships is the single biggest contributing factor - get balance in your life....
7. Take care of your body - sleep exercise, stretching, smiling and laughing can all enhance your mood in the short term. Practiced regularly they can help make life more satisfying.
8. Develop strategies to cope with stress and hardships – positive self talk, religious beliefs can make a huge difference.

I went to Carnegie Hall on Tuesday night. Andre Previn (who is 80) conducted The Philadelphia Orchestra’s performance of Symphonia domestica, a mock-heroic musical depiction of family life, with themes representing Richard Strauss, his wife, and his child. It was wonderful (and I got a ticket on the same day). But what I did for the first time was attend a pre-concert lecture given by a professor from Duke University talking about Strauss and the piece. I love music but never studied it and listening to Professor Bryan Gilliam explain the nuances of the piece made listening more meaningful. It got me thinking that maybe I should get involved in studying classical music from a historic standpoint (I’ve always wanted to play classical but can’t read music and would need to overcome a mental-block about that).

Help needed: Some of you may have read about this horse breeder Paragallo who has been severely neglecting more than 170 former thoroughbred horses at his farm in upstate New York. “It’s really bad. It’s the worst I’ve ever seen in a thoroughbred situation. The animals themselves are in horrific condition. It’s a sad, sad scene", said a representative from the humane society. There's a group called Equine Rescue Resource that needs our help. If you can, call Cornell University Equine Hospital (607-253-3100) and make a donation (small ones add up) to the vet bills of the neglected case brought in by Equine Rescue Resource. I hope this guy gets the book thrown at him.


Where I'll be:

Apr. 10-11: New York to see Umphrey’s McGee at the Nokia Theatre. Anybody going?
April 19-25: Athens, Greece for INREV’s Annual General Meeting and Conference
Apr. 26-Apr. 30: Chicago to record my second CD of original music for the benefit of Keys-4-Kids.
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.


If you’d like to reach me the best email address is (steve@simplicate.com).



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

On the Road

“Will there be new capital invested in real estate by institutional investors in 2009?” Not long ago, this would have been the $64 billion question. But this year it’s much less; perhaps much, much less. Recently an investor answered this question by saying, “There will be money but a lot of it will be related to prior commitments.” Now we can guess all we want but the reality will only be understood when someone who is raising a fund starts calling on the global pension funds, endowments and foundations to sell their wares as it were. Capital raising friends of mine suggest a bleak year; asset management seems to be the focus. But some of us are either in the market now or will be coming out shortly with new funds and I, for one, believe that there is money out in them there hills, it’s just going to be like the ‘Gold Rush’ and that finding it may require wading into water up to our butts before we get lucky. But given track-records, experience, trust and, for some, co-investment if the strategy is right for the current market, funds will be raised although not the super-sized ones of yesteryear. However, once you have successfully navigated those waters, the next obstacle on the course is investing it and those whose strategies focus on investing in things other than actual properties may have an advantage. Cash is both king and queen right now and it rules the game.

Congratulations to Private Equity Real Estate (publication and website) for the coverage of the recent PREA conference on their website. Senior Editor Zoe Hughes was omnipresent at the event and filed updates from panel sessions in virtually real time (is that an oxymoron?). Today, she wrote an interesting piece regarding the auction of the mortgage on the John Hancock Tower in Boston. There was only one bidder for the mortgage defaulted on by Broadway Partners. If there were one less bidder it would be like ‘what if they gave a party and no one came?’ But to me it’s still a significant indicator of the state of the market. This, coupled with another large job loss report today and other reality based financial news, not the least of which is the seemingly surge in people in the global private equity real estate industry quitting their jobs means something. Of course, what we read is not always what actually has happened (except here ☺ but there’s definitely “Something in the Air” (listen to one-hit wonder Thunderclap Newman).

As a Christmas present, one of my sons gave me Season One of the TV show “Friday Night Lights.” As I watch very little TV I didn’t even know this existed, although I did see the movie when it was out. I have become addicted to the show. It’s the first time anything like this has happened to me. Yes, the show is based on a Texas high-school football team but the main characters and the plots are what make this very special. And, after watching this season’s episodes on Hulu.com I am up to date on all the action. Funny, this week NBC announced that it was renewing this show for two more years. Woo-hoo! I’m hoping to catch the new episode tonight (if my TV picks up an NBC affiliate).

Some references I chose to delete this week:
1. White Castle, Verona, NJ: ordering bags of burgers, car-hop service, well after midnight after band gigs.
2. The media’s failure to provide follow up stories on major events (i.e. Buffalo plane crash)
3. iGlobalForum Private Equity Conference: I moderated a panel at this event two weeks ago in New York. While there were hardly any institutional investors in attendance it was well done event, which attracted interesting players. They also hosted a pre-event reception for speakers which was a very nice idea and well attended.

Where I'll be:
Apr. 6-9: New York
Apr. 10-11: New York to see Umphrey’s McGee at the Nokia Theatre (a great band in a great venue)
April 23-25: Athens, Greece for INREV’s Annual General Meeting and Conference
Apr. 26-Apr. 30: Chicago to record my second CD of original music for the benefit of Keys-4-Kids.
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.



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

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.

Toxic Asset

Wouldn’t’ you be a little wary about buying something called a “Toxic Asset.” It’s like walking down a supermarket aisle and seeing a bathroom cleaner with a skull and crossbones and the word “POISON” in bold red letters. But, that bathroom cleaner is the one that works; you just need to heed the directions, warnings as they are, to immediately wash your hands in water from the Sea of Galilee should you inadvertently touch it. But from the sounds of it, the U.S. government’s announced $1 Trillion Toxic Asset Plan will not require that type of announcement to those buyers who will stroll the halls of Congress and presumably choose those portfolios that they’d like to take home with them. Of course, our government states that , “to help protect taxpayers, who would pay for the bulk of the purchases, the plan calls for auctioning assets to the highest bidders.” How lovely. What a novel idea. So here are the three components of this masterminded plan: One: The Federal Deposit Insurance Corporation will set up special-purpose investment partnerships and lend about 85 percent of the money that those partnerships will need to buy up troubled assets that banks want to sell. (SF Note: Setting up public-private partnerships is a frightening thing). Two: The Treasury will hire four or five investment management firms, matching the private money that each of the firms puts up on a dollar-for-dollar basis with government money. (SF Note: The Vegas odds-makers have pegged these firms already so I doubt if we’ll see any surprises there). Three: The Treasury plans to expand lending through the Term Asset-Backed Securities Loan Facility, a joint venture with the Federal Reserve. Yup, this is exactly what I would do….Not. But then again our government is in a desperate battle to do, as Todd Rundgren’s album was titled, “Something, Anything.” I’m worried that these solutions will back-fire, big-time and fairly quickly and just as the money given to companies like AIG, just as a poster child, will end up being misused, abused and will help change Toxic Assets into Toxic Solutions for only the privileged few. And in the end they'll have so little skin in the game they're not worried at all about the poison touching their skin. But I think the real opportunity is to start selling bottled water from the Sea of Galilee-anybody want to form a partnership with me? Last item about MIPIM. Here are some things heard at MIPIM as posted on Creopoint.com: - “When the going gets tough the tough get going...To the south of France!” Boris Johnson, Mayor of London - ”There were two kinds of people at MIPIM. Those complaining about the lower number of visitors, and those happy with the higher ratio of C level people there.” Magnus Svantegård of Datscha -“We are all feeling the impact of this new world order where what happens in a blink may affect our lives and those of our clients.” DLA Piper - "We feed our investment team Prozac on a regular basis." Janice Stanton of C&W - “There’s no talk about sovereign funds or Russian oligarchs compared to last year.” Dietrich Heidtmann of Morgan Stanley - “It is not the strongest of the species who survive, nor the most intelligent, but the ones most responsive to change." Charles Darwin quoted by Robert Newhart of Innovation Center - “When money no longer controls your culture, there’s room for new ideas to establish themselves.” Wolf Priz, leading architect - “Be open to new people, everyone is in the same boat today.” Steve Felix, Aviva - "The immediate future is very much in the hands of our banks and the success of our government support.” Nigel Roberts, JLL - “The US government should stop saying they will sweeten the pot. No one wants to be seen as a premature ejaculator.” Ken Patton, Dean New York University RE Institute Natasha Richardson’s death this week was very sad. While we only know what we read in the papers it sounds like the delay in getting medical attention made the unfortunate difference. It’s a reminder, once again, that life is so fragile and it can change in the blink of an eye. The PREA Spring Conference is coming up in Washington, DC next week. The advance registration list just came out and there are 666 names on it! Given what is going on in the world and the industry, that is a huge amount and congratulations to PREA for putting together a program that is attracting a lot of interest. I’ll give you my report next Friday. I finally saw “Slumdog Millionaire” on a flight recently. What a powerful movie. Now I know what all the hoopla was about. And speaking of hoop-la: Syracuse wins their first round. While I don’t have a TV where I can watch four games simultaneously but I think this is going to be one of the most exciting NCAA’s in a number of years. Singer/Songwriter of the Week: A couple of months ago I bought a piano through Craigslist from Shannon Corey. While I have not yet seen her perform live I thought you might like the new song that she has on her website called “I Miss Home). http://www.shannoncorey.com (p.s. the song is also available for download at iTunes). Where I'll be: Mar.24: New York to moderate a panel at the Second Annual iGlobal Forum Real Estate Private Equity Summit. Mar. 25-26: Washington DC to attend PREA's Spring Conference 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. These are my personal views and not that of my employer.

MIPIM (2)

Many of you have asked me to either eliminate or reduce the use of links in this column. I forgot that in my last post and have copied the excellent article about the MIPIM Summit which appears on the website of Real Estate Publishers and was written by REP Senior Editor Bernd Struben. The exclusive event drew a full house of top investors from around the world. The interactive format between the panel and the invitation-only audience was kept on track by moderators Steve Felix, Head of Real Estate Client Relations-North America, Aviva Investors, and Janice Stanton, Senior Managing Director, Cushman & Wakefield. The panel comprised Peter Reilly, Managing Director, JP Morgan Asset Management, Hans op ‘t Veld, Head of Real Estate, PGGM, Joe Valente, Head of Portfolio Management, Allianz Real Estate GmbH, and Dietrich Heidtmann, Managing Director, Morgan Stanley.

Does anybody really know what time it is? With the world economy sagging and real estate taking a big hit everyone is looking for advice. REP’s MIPIM Summit 2009 topics included: rebuilding confidence in the real estate industry; what the best plans are given the current market situation; the right price for risk; how to decide between debt and equity when the yield on debt can exceed that on equity; examining when the bottom will be reached; and asking if people think enough outside the box? When the audience of top industry executives was polled on when they expect the recovery to commence, no one raised their hand for 2009, most expected the first half of 2010, and about a quarter voted for the second half of 2010. When the audience was asked their expectations for the value loss from peak property prices in 2007 to the eventual trough the majority expected a loss of 30-50%, while none thought it would be less, and a few expected an even greater loss in values.

Peter Reilly, Managing Director, JP Morgan Asset Management. Peter Reilly, Managing Director, JP Morgan Asset Management: “Following the last two to three years of very aggressive growth we’re looking at a major change in the next few years. Operating in a no-growth environment the focus will be on individual properties and working closely with the tenant. In the near term the focus will return to trying to add value to the existing portfolio, and there will definitely be a switch back to mature markets and reducing risk throughout the portfolio. There is no pressure to invest today; we’re only making acquisitions selectively where they make very good sense. By and large investors have lost a huge amount of equity. Right now they are reluctant to commit until they are sure we have hit bottom. They prefer to wait until 3-6 months after we’ve hit bottom to reenter the market. Investors are shell shocked, in a cash defensive position. But in 2012-2014 inflation from all of the mounting government debt is going to kick in, so property will become very attractive. In the mean time a lot of debt needs to be restructured; a lot more needs to be done to bring confidence back in the system. It’s going to be back to the people who really know what they’re doing and can stick it out for a few years.”

Hans op ‘t Veld, Head of Real Estate, PGGM. Hans op ‘t Veld, Head of Real Estate, PGGM: “The REIT market has seen a wild ride over the last two years. The volatility is quite high. Right now there is a gap between the direct markets and the REIT markets, and the question is, whose pricing is right? We’re quite worried about the whole deleveraging process that’s going on. We’re more interested in well capitalized companies; capital has become quite expensive. In the last few years the game to play was yield compression. The question is, was that a sensible thing to do, particularly in the smaller markets with so much capital pouring in? On the investor side the UK, US, and Singapore have probably hit bottom in terms of sentiment. My concern is with continental Europe; I don’t think the acceptance is there yet. The realization is still to come that rents are going to be what they were. We’re adapting and learning a lot. Looking forward things look quite attractive. Inflation will be back, and we can get our hands on assets we really like. Trust is wonderful to have with investors, but evidence is even better. You’ll see more scrutiny in the future.”

Joe Valente, Head of Portfolio Management, Allianz Real Estate GmbH. Joe Valente, Head of Portfolio Management, Allianz Real Estate GmbH: “We have a mandate to grow over the next few years, but there is no pressure to buy immediately. Our overall strategy places a lot of focus on the core markets, but we are also interested in the distressed markets. The priorities are where you think the greatest opportunities are. There is no overall answer as to when the bottom will be reached. It will be different in different markets, different in London than in other cities. The big issue in our markets is the debt overhang, the debt rollover. This may make real estate lag behind the macro economic recovery; investors may ask for higher returns. We’re looking at five to 10 years to unravel the debt, but there are lots of opportunities. There’s an 8% yield in London, which looks great until you realize rents are going to fall 50%, so then you have a yield of 4%. And then you currently have a 5% yield in Bucharest, which just doesn’t make sense. For the first time in the entire cycle people are learning the value of fundamentals. It’s a great time to be an equity player. It’s about the asset; it’s about understanding the local market. Now is the time to talk to major players about grade-A assets, because those will be the first to go. The goal is finding the ideal combination of a distressed loan but not a distressed asset.”

Dietrich Heidtmann, Managing Director, Morgan Stanley. Dietrich Heidtmann, Managing Director, Morgan Stanley: “The reasons why people went into real estate in the first place are still valid. I haven’t met anyone who is reconsidering their involvement in real estate. But the benefits of having a globally diversified portfolio have been less clear in the last 24 months, so people have started to refocus on their home markets, a more domestic focus even though there are still great cross-border opportunities. Today investors with capital know the value of that capital. To be successful today in raising a fund you have to start with investor feedback and know what they’re looking for. The typical fund of ‘here, this is what we’re doing’ is not effective today. Communication is the key with today’s investors.”

Janice Stanton, Senior Managing Director, Cushman & Wakefield. Janice Stanton, Senior Managing Director, Cushman & Wakefield: “There is an interesting interplay between greed and fear in the markets. The US has lost 4 million jobs and vacancy rates will still go up. If you can hang in there and be selective, there are some incredible buying opportunities coming up in the next few years. We’re seeing the reemergence of local players. In smaller deals of under 25 million, certain people can do this entirely with equity; they’re seeing the yields and stepping in.”

Steve Felix, Head of Real Estate Client Relations-North America, Aviva Investors. Steve Felix, Head of Real Estate Client Relations-North America, Aviva Investors: “There are and will continue to be opportunities in the US, but capital has become more conservative than it has ever been. Experience is a premium. The past five years were actually extraordinary, but since they’re the recent past, we think of them as normal. It’s very important for senior people in General Partnerships to visit the investors. That makes the investors feel comfortable that you’re on the job and know what you’re doing, and people will pass this on.”

On the Road-At MIPIM

This week at MIPIM in Cannes started off with a beautiful full moon sitting low off the horizon of the Croisette (the main drag) and you knew it was going to be a good week. While too many people were hung up on exactly how many delegates attended MIPIM it was a huge success. My guess is that the number was between 18-20,000 which, given the economic circumstances we’re all dealing with shows that MIPIM is considered by many people in the broad commercial real estate industry to be a ‘must attend’ event. One of the glaring differences this year was the greatly reduced presence of the Russian cities and companies who in the last few years had become virtually omnipresent. In an informal poll I heard a number of people who had stands (booths) in the Palais say that it was a better show in that it allowed you to have real, substantive conversations with people and the quality of the delegate was of a higher level. This, to me anyway, is what a ‘trade show’ is all about and while, when you ‘open your door’ to anyone you run the risk of having to accommodate the random person coming up to you looking for financing for a luxury hotel to be built in East Jibib it’s just in a day’s work.

The MIPIM Summit TV show went off really well (and it’s not just my opinion) and my co-host, Janice Stanton of Cushman & Wakefield, Pete Reilly of JPMorgan, Dietrich Heidtmann of Morgan Stanley and Joe Valante of Allianz proved that transparency, honesty and respect (for one another) is the key to both a successful panel and to doing business. My appreciation also to my friend Marinus Dijkman of REP (Real Estate Publishers) who brought me into this opportunity and who was the coordinator of the event. Rose-Noelle Prichard of Reed Midem (MIPIM) and her team made this all possible and ‘first class.’ Selected video clips of the Summit will be available shortly; I’ll let you know. (You can read more take-away quotes from the MIPIM Summit on the REP website.

So, what was the sentiment this week? Clearly realistic but also realistically optimistic; at least from those who have been through other cycles. When I polled the MIPIM Summit group about when they feel we’ll ‘hit bottom’ globally (not an easy question given that each market is on it’s own clock), the strongest vote was for 1Q2010. But, one panelist said "make no mistake about it, there are great buying opportunities in markets such as London whose downturn occurred earlier". Debt is clearly the biggest question; when will it return and from what sources and what will it look like. And while, as one of our panelists said, “it’s interesting that we’ve spoken here for almost 90 minutes and no one has said the words “Sovereign Wealth Funds”, some feel that they will be come a real source of debt going forward. While we don’t know what ‘normal’ will look like when it appears it’s clear that the commercial real estate industry has gone back to the basics of sound asset/property management to increase cash flows from operations. So, good things do follow bad. But to sum it up, as I’ve written to you before, if you are now or aspire to be a player in the global commercial real estate industry, MIPIM is one event that you must attend each year.

This week I also got to meet a fellow who has been reading my column for years and we’ve occasionally emailed each other but had never met. This is when life is good. And, will all the stress of business, the drain of the worlds financial mess, the horror of more random murders by lunatic people in both the U.S. and Germany this week and the news that friends are ill, it behooves us to move forward, to keep on keeping on and to be kind to each other as, no matter where we’re from, we’re all in this together. There was much laughing this week at luncheons and dinners; there was much camaraderie, perhaps the feeling of being drawn together by adverse market conditions. But whatever it was it showed that more and more as people get to interact with others from countries and societies foreign to them, we learn more about each other and that, my friends, is what I believe will bring us closer to a truly global community. This week gave me even more hope of that promise.

Many years ago I adjusted my expectations, make that lowered them, about what I’d like to accomplish at any industry event. My approach has been that if I can come way with having met one person that I hadn’t known that is meaningful, the event was a success. This week I had that happen as I met and talked with a man and I know that we will stay in touch for a long time and become friends. (Note: My expectations are generally exceeded but I never expect them to be….that’s the beauty of it!).

Final thought. The suggestion to call this column “On the Road” was suggested by a former colleague who did not know that my favorite all-time book was Jack Kerouac’s “On the Road.” Recently, I bought “On the Road with Charles Kuralt” (a CBS News reporter). I just finished reading it. It’s a good read. But I want to share with you how the book ends. It’s about a tree alongside Highway 50 in Delta, Colorado: “Just looking at it (the tree) makes you think about how unexpected life on earth can be. The tree is so lonely and so brave that it seems to offer courage to those who pass it-and a message. It is the Christmas message: that there is life and hope even in a tough world.”

Photo: Survivor's Networking Breakfast at MIPIM this morning.

Where I'll be:

Mar.24: New York to moderate a panel at the iGlobal Forum Real Estate Private Equity Summit on the 24th.
Mar. 25-26: Washington DC to attend PREA's Spring Conference
Apr. 10: 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.

Note: Statistics I mentioned last week were from IREI’s VIP Conference.

P.S. For more commentary about MIPIM check CREOPoint




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