The Power of Now

There is no question that the new year has brought new and renewed interest in investing in the institutional real estate community.   That's not to say that every pension fund, endowment or foundation has an 'open to buy' but clearly there is more focus on looking forward at opportunities than looking backward at distress. The funny thing is that in many ways, the forward opportunities will come from dealing with distress but that's just the period we're entering.  I've been involved in creating value from distressed commercial real estate and loans for a long time but things used to be simpler.  There was a property.  There was a first mortgage.  We all knew who each other was and how to find each other.  When it came time to deal on a situation in hindsight it was pretty simple.  Well, as time has gone on, this and other things in our world have become more complex.  However, the underlying skills needed to work out a problem property at the property level are still pretty much the same.  My old industry friend, Bob Barclay, who runs North American Realty Advisors, has used a phrase in his marketing pitch for many years, "Creating a silk purse out of a sow's ear."  It's pretty graphic but they and a handful of others have been able to do just that, not only with underperforming commercial real estate but also with environmentally tainted properties in the Rust Belt.  However, the untangling of the complex "Capital Stack" as it's now known, is more cloudy than clear and that's why it's not just any Larry, Moe or Curly who can be successful in some of these type deals that are in the offing today and tomorrow.  But with new capital seeming to be ready to step up to the plate, this is looking like it's going to be a very, very interesting year in our industry and I, for one, am glad to be in the hunt and are expecting 2010 to be a lot more fun than "the year which will not be mentioned."

Timing may not be everything but it means a lot.  Recently, I was given a book to read.  It was a book that I had been exposed to a couple of years ago but at that time the message didn't resonate with me.  This time was different. Very different.  And the message was not only loud and clear but I was ready and able to accept it's premise and immediately incorporate it into my life.  I have seen and felt a positive change within me that is very powerful and very healthy.  It feels good and while I have been aware of my own demons for many years, they had continued in one way, shape or form, keep pulling me back from breaking away and really enjoying life every time I thought I had broken away.  The book is called "The Power of Now."  I won't ramble on here about it any more.  Just wanted to mention it and leave it to you to decide for yourself.

 
Photo:  Sean Felix with his first drum




On the road.....
Feb. 9-11:  Rancho Palos Verdes, CA to attend IREI's VIP Conference
Feb. 18-19:  Chapel Hill, NC to attend and be a judge at the Kenan-Flagler Real Estate Challenge
Mar. 24-25:  Boston to attend the PREA Spring Conference



These are my views and not that of my employer.

On the Road-Long MLK Weekend

Many of you have been following this column for a number of years so you guys know that for 10 years I worked for Institutional Real Estate, Inc. and was intimately involved with some of their conferences, particularly the VIP Conference.  So with that as a disclaimer, I learned today that there are still some openings for people to sign up to attend that event.  I'll be there and for the past two years we, Aviva Investors, have also done a modest sponsorship of the event, namely the chocolates on your pillow.  However, all that aside, this event has become a signature event of the institutional real estate world and is organized in the professional style by which has built IREI's reputation, representing the tax-exempt real estate investment world.  Suffice it to say that if you are not already planning on attending the VIP Conference, I'd suggest you seriously think about whether, given the very strong turnout of pension funds, endowments and foundations who will be there, it's a meeting that you can't afford to miss.  Here's the link for information and registration.  I look forward to seeing you there (http://www.irei.com/web/do/pub/seminars/description?id=1549).

Seeing the video of the situation in Haiti-there are no words to describe it.  Is there any way to imagine what it's like to be in a natural disaster?  It's not like war where people basically expect to die.  This is just another day and Wham-O!  My only experience with an earthquake was the first year we had moved to Napa, CA.  It was 1:37am on the Monday of Labor Day weekend in 2000.  We were awakened by the sound and then by the feel of our house moving up and down as if we were riding the waves at a really good surfing beach and a strange blue light.  Our first thought was that a truck had hit the house.  Then the sounds of some of our stuff breaking and then things falling off the walls and hitting us.  When all this stopped we surveyed the damage.  Nothing structural.  Just some stuff broken but boy did it scare the living daylights out of us.  That particular earthquake, at a spot where the seismotologists hadn't previously known there was a fault line, was 5.2 magnitude.  The one in Haiti was 7.0.  After we cleaned up the broken stuff we started talking about moving back to the east coast.  But I guess we just slipped into the same M.O. that we've learned exists out here....we forgot about it.  But in Haiti which is being talked about as the second most devastating in history is just something that almost is beyond belief. Estimates as high as 500,000 dead are being mentioned.  This would make it a number normally associated with a nuclear attack and would be second only to the one that killed 860,000 people in Shanxi, China in 1556.  The most destructive earthquake in modern times also occurred in China, when a quake in Tangshan in 1976 killed almost 270,000. But regardless of the numbers, a natural disaster like this once again has to make us think about how fragile the whole damn thing is.   What I still can't grasp is why people are still killing each other instead of celebrating life and finding the joy that we are able to find if we just let ourselves.  I know all of our hearts and helping hands go out to the people of Haiti.  If this type of thing were done as a reality show, no one, would ever believe it could be true.

Restaurant of the week:  SushiSamba, 245 Park Avenue South, New York (212) 475 9377 (http://www.sushisamba.com).  Offering the unlikely combination of Japanese/Brazilian but, hey, why not?  It's a busy place with an extensive Sake menu (I had the cheapest bottle from Nigata, where I had once visited and it was excellent).  It's a little loud for a business dinner but then again shouldn't business be fun?

On the road.....
Jan. 20-21:  Des Moines, Iowa
Feb. 9-11:  Rancho Palos Verdes, CA to attend IREI's VIP Conference
Feb. 18-19:  Chapel Hill, NC to attend and be a judge at the Kenan-Flagler Real Estate Challenge
Mar. 24-25:  Boston to attend the PREA Spring Conference

You don't have to be going straight-Just Forward!

I found something called "The Scary Times Success Manual" this week.  It's written by Dan Sullivan who has a company called Strategic Coach.  With so many people facing challenges I thought the this was very poignant.  Here are the 'headlines.'  Let me know if you'd like me to send you a copy of the whole piece.

1. Forget about yourself, focus on others.
2. Forget about your commodity, focus on your relationships.
3. Forget about the sale, focus on creating value.
4. Forget about your losses, focus on your opportunities.
5. Forget about your difficulties, focus on your progress.
6. Forget about the “future,” focus on today.
7. Forget about who you were, focus on who you can be.
8. Forget about events, focus on your responses.
9. Forget about what’s missing, focus on what’s available.
10. Forget about your complaints, focus on your gratitude.

Without knowing that I had been mulling it over, my wife recently surprised me with a Kindle.  I read almost continuously and love books and wasn't sure if I could 'give up' the 'book.'  I love my Kindle. It's great for travel although it's considered 'anything with an on-off switch' by the flight attendants so you have to wait until 10,000 feet and shut it down on landing.  The ones I've read on it so far are:  On the Road, The Crossroads Cafe, Fireflies in December, Still Alice, The Time of My Life, Twenty Thousand Leagues Under The Sea, Last Words, What the Dog Saw....

Our industry colleague, Jim Hime of Lionstone Group has just published his third novel.  This one is called "Where Armadillos Go To Die."  I have not read it yet but I have read Jim's two other books which were excellent mysteries set in the Southwest.  Congratulations Jim.  I'll be picking it up this weekend.

RCA's first U.S. Capital Trends Report of 2010 came out the other day.  While the NY Times had an article today "Further Slide Seen in NY Commercial Real Estate"  I think this opening paragraph from the RCA report bodes well:

The overall universe of commercial real estate players might have shrunk in the downturn, but a significant group of new players have gathered on the sidelines and are waiting to deploy capital. Transaction volume in 2009 was historically low, and accordingly, the number of new entrants into the direct property market was the lowest in years. However, it is clear that there has been a notable pickup in activity by new buyers over the past few months.

In addition we've been seeing more Family Offices showing sincere interest in investing in real estate, many for the first time.  It's just that those entities are hard to find as they like to stay below the radar.  Maybe I would too if I had some serious money!

Photo: This morning.  The Rockefeller Center Christmas Tree's last hurrah.

Restaurant of the Week:  Spice Fusion, 8th Avenue bet. 47th & 48th in Manhattan.  If you walked by this place without knowing about it you probably wouldn't go in.  You should.  (http://www.myspicefusion.com)

On the road.....
Jan. 20-22:  Boston and Connecticut
Jan. 25-26:  Philadelphia and other Pennsylvania spots
Feb. 9-11:  Rancho Palos Verdes, CA to attend IREI's VIP Conference
Feb. 18-19:  Chapel Hill, NC to attend and be a judge at the Kenan-Flagler Real Estate Challenge
Mar. 24-25:  Boston to attend the PREA Spring Conference





These are my views and not that of my employer.

The beginning of a new road

For me, the end of a year is not a time to look back, it's time to look forward. Of course, none of us really knows all that the future (short and long term) hold in store for us. But then there's the idea that we can sculpt our own future to the degree that we choose. Only a few years ago I learned that writing down ones goals for the year (or for any period of time) is more powerful than simply thinking about them. I've been working on my 2010 goals and while I want to make them achievable I also want them to be things that require focus, perseverance, fun and some reach.

In addition to RCA's stats showing increased volume of transactions, there are some other signs of life in our industry. I've gotten more calls from recruiters in the past month than I had through most of 2009. People are hiring again; getting ready for the next cycle or adding people with specialized talent to augment their existing capabilities.

Serendipity Strikes Again: On a recent flight from Montreal to New York I sat next to Vanessa James who with her partner, Yannick Boheur were just named to the French Winter Olympic Figure Skating Team. She's a really nice kid and a beautiful skater. Now I have a reason to watch those games and root for them!

2009 was a challenging year for many of us (dare I say most or all of us?) and while every year offers it's own challenges, this particular one that ends today will probably be remembered mostly as the year we wanted to see end.  But, there were also some special things:  my Dad getting reunited with the WWII plane with which he had a life-long love affair, my grandson Sean being born, my finding support from you guys (and other friends) as my father passed away and simply the joy of being alive and being able to look forward to and make plans for the next year.  We've all had our smiles and tears; after all, that's life.  But as we watch the full moon tonight and raise our glasses to bring in the New Year, I want so share with you something I took from the book, "All I Need to Know I learned in Kindergarten": 

No matter how old you are-when you go out into the world, it is best to hold hands and stick together.

 Cheers and Happy New Year!

Photo:  (l) TimeWarner Center, New York (r) Sean Felix: On the Road


On the road.....

Jan. 4:  Menlo Park, CA
Jan. 13-15:  Laguna Beach, CA to attend and moderate a session at IMN's Seventh Annual Winter Forum On Real Estate Opportunity & Private Fund Investing
Jan. 20-22:  Boston and Connecticut
Jan. 25-26:  Philadelphia and other Pennsylvania spots
Feb. 9-11:  Rancho Palos Verdes, CA to attend IREI's VIP Conference
Feb. 18-19:  Chapel Hill, NC to attend and be a judge at the UNC Annual Real Estate Conference and Kenan-Flagler Real Estate Challenge
Mar. 24-25:  Boston to attend the PREA Spring Conference
Mar. 25-26:  London to moderate a panel at IMN's European Distressed Real Estate Symposium
Apr. 14:  Dallas to attend the UBS Investor Conference





These are my views and not that of my employer.

The end of the road: 2009

With the kind permission of RCA here is their 'executive summary' of their Global Capital Trends report which was just published today:

Calling the Bottom and Looking Forward to 2010
If there is only one thing for sure, it is that everybody in the commercial real estate industry in the US is looking forward to 2010. Although the industry and the overall economy still face an array of hurdles ahead and no one is giddy with optimism, the year is starting with more clarity and a lot less fear than 2009. Some very positive events just in the past 60 days have helped bolster the spirits of many industry players:
 Transaction activity is increasing
 REITs have been able to de-lever quickly and enjoy unique access to capital
 Foreign buyers are hungry for US assets, particularly since prices in Asia and Europe are already rising
 A reported $75b or more of equity has been raised by opportunistic funds and very little of that has been deployed
 The credit crunch is starting to ease and financing for quality assets and larger properties is becoming more available
 The CMBS market is starting to thaw, with several successful single-borrower issues completed since mid-November
 Fundamentals remain poor and are expected to stay that way in 2010, but the market, expecting the worst, has already priced in the poor operating outlook.
 Bank regulators announced new guidance that could greatly reduce mass defaults and asset sales previously anticipated by the tsunami of upcoming loan maturities

Taken together, these factors point to a 2010 investment market that moves decisively forward. Operating fundamentals, banking uncertainties and political realities in the US and around the globe will all play a hand in keeping the trajectory of the improving market from being too steep over the near term. Farther out, the overhang of so many extended and restructured mortgages also clouds the future. But for now, broad investor sentiment in the US is clearly turning an important corner as the new year approaches.


Lessons Learned from Ted Leary, Crosswater Realty Advisors

( in no particular order)

1. Co-investment by a manager does NOT necessarily produce better performance

2. When you underwrite an Allocator, you need to understand their ability to underwrite & manage Operators.

3. Alignments of interest structures often dissolve and even reverse when markets go bad.

4. Bigger is often “Badder” when AUM reaches the tipping point where AUM revenue is more important to the Manager than performance based revenue.

5. Investors need to keep a close and continual watch on their investments – even in discretionary funds. “Trust, but Verify!”

6. Investors need to have a “Voice and even a Vote” in higher yield/risk strategies

7. If a Manager can’t readily & easily describe its “risk management” process, it doesn’t have one.

8. Beware of Managers who want to go “outside their box”.

9. Leverage doesn’t make an investment a better investment – it simply increases the potential rewards and risks of that investment.

10. “Global real estate expertise” is an oxymoron.

Bonus Lesson: If you want to discover whether a Manager is a “fiduciary” you need to look into their corporate “soul”, not just their numbers.

I've met with a number of people in the past year. Some who are experienced but out of work and others who are coming out of an MBA program and are looking to get into or back into the real estate industry. And on the subject of careers, last week I Googled Nori Gerardo Lietz of Partners Group to find her phone number. What I found in addition was a commencement address she gave to the Fall 2005 graduating class of the MIT Center for Real Estate. I found some of her comments particularly poignant as they resembled some of the things I have both believed in for myself and have counseled others on as well. I'd like to share these passages with you:

"As you evaluate career opportunities think about risk. Don’t accept the conventional wisdom of what are the “safe” jobs. The seemingly safest position today may actually far riskier than might be perceived by the “herd” mentality. What may be perceived as a “safe” job today, may not even exist in 10 years. Think of all the people who went to work for large financial institutions thinking they had a great career path in front of them and were merged out of a job. I’m not trying to be a pessimist, I’m suggesting that you try to identify ALL the potential risk factors and assign probabilities to them occurring.......

Don’t underestimate the importance of serendipity. Seemingly unimportant or random events can have profound impacts so you need to be open to them. I truly believe you have to be open to those serendipitous moments and go with your gut instincts just at that moment. These serendipitous moments can occur in a conversation, a chance meeting or the exchange of ideas that may at the time seem unimportant.......

Lastly, and I think most importantly, expect the unexpected from yourselves. Take risks. Risk is not a bad thing if you understand the risks you’re taking. Take the job opportunity in a place you never dreamed you go. Go to India. Go to Brazil. Go to China. Do something scary: take the assignment that you know absolutely nothing about, and neither does anyone else, and master it. Figure out how to become indispensable in the company for which you work. That’s the ultimate job security and risk mitigation. Become an entrepreneur. I started PCA when I was 31. I asked myself at the time, what’s the worst thing that could happen? The company might fail. That didn’t that mean I’d be a failure. I’d find another job. So can you. Push yourself to a place farther than you ever thought you could go.

Expect the unexpected from yourself and you never know what might happen."

So with that, I wish you all a Merry Christmas and Happy and Healthy New Year. We've all been through a tough year and it's likely that things are not going to change from gray to blue overnight as the we turn the calendar to January 1. But we can change our attitude about things and "Push ourselves to a place farther than we ever thought we could go". And, as always, I appreciate your support of this weekly column. Thanks a lot.




These are my views and not that of my employer.

Probitas Partners published an excellent white paper this week, "Real Estate Private Equity Fund Investing: Profound Changes for the Road Ahead." These are the primary trends they see:

• The real estate sector has not yet reached bottom and will not until perhaps late 2010 or early 2011, with capital markets “normalcy” returning perhaps by 2013.

• No new development will materialize in the foreseeable future.

• New acquisitions will occur at discounts to replacement cost, many at deep discounts depending on the physical condition of the assets and leasing.

• The downturn will be significantly deeper and worse than the 1980s/Resolution Trust Corporation (“RTC”) crisis; many fund sponsors will restructure or disappear. And like the RTC era, successful groups will persist and new groups will emerge, with some of the most successful teams taking full advantage of these market dislocations.

• Investors will return to an emphasis on fundamentals and a focus on operational expertise; initial strategies will include debt repurchases, asset rehabilitations, releasing, debt restructuring, acquisition of fund interests or general partnerships, etc.

• There will be attractive investment opportunities — in direct investments and secondaries —
but investors will need to focus on fundamental asset valuations and stable teams capable of executing on operational business plans to achieve the return potential, since this will take some time.


Another piece just published is in the current issue of "RICS Property World" magazine, Marc Louargand, of Saltash Partners writes in an article titled, "Are We There Yet?":

• The outlook for the near term is not better.
• We will again have a flat bottom for an extended period as we enter a period of mixed results.
• It could take as many as five years to regain the jobs lost to date.

Falling Cap Rate Scenario or Rising Cap Rate Scenario?

"It will likely be both. Persistent high cap rates for a period of at least 12 to 24 months, followed by cap rates falling on a relative basis to Treasuries. The initial phase of recovery will see few if any jobs created, thus investors will lack confidence that they will be able to fill empty space in the short run so that they will rely on in-place revenue and be subject to reduced leverage opportunities. At some point, however, the massive liquidity created by stimulus packages around the world will escape the liquidity trap and inflation will come roaring back. Monetary policy response will lead to higher reference rates from central bank actions or from investor pricing....So, after a period of persistently high cap rates investors will come back into the market in sufficient volume to put downward pressure on cap rates and force them to price inflation into their expectations rather than into the cap rate."

This kind of stuff definitely gives us food for thought but as with all input, it's up to us to absorb, ponder, inquire and come to our own conclusions. For the past 18 months or so, a number of long-term real estate investors have just decided to sit on the sidelines rather than venture out in uncharted waters. My question is: Will the sea be any calmer or more predictable in 2010 than it has been and who really knows the answer?

From what I hear, debt is back, in a big way. But then again, competition for 'good' properties has heated up also. Hmmmm. Are we back to 'things as usual?' Not quite and maybe not for a long time. Don't forget that the key to income producing real estate is.....income. And the way it looks, it's getting harder and harder to keep properties fully leased (or even leased enough to generate any cash flow). I don't think anyone really knows how things are going to begin shaking out in 2010 but I'm hearing from too many institutional investors that they can see themselves pretty much sitting on the sidelines through 2010 and are talking about 2011 as being the year they get back into new allocations to real estate. Having said that I also believe that there's still a lot of investors who are unhappy with how the managers of commingled funds have handled themselves and are looking at that structure with very critical eyes going forward. It seems that there may be more interest from investors in club deals (where they feel they will have more say at the table aka more control) or one-off transactions.

We have all paid tolls to cross bridges or go through tunnels. It could take us from one part of a city to another, across state lines or from one country to another. Tolls (apologies to the infrastructure investment community) don't go down: they go up, sometimes, as New Jersey did with it's Garden State Parkway and Turnpike, dramatically. And, while sometimes we pay tolls to go to and from work or school, or on holiday, the fact is is that there is always a price to pay to get from here to there. But, "there" may be a new job, a girlfriend, a new home. Or it could be that we are taking the bridge or tunnel to get away from our past or a life that has changed for the worse. Taking flight does not always involve boarding an airplane and today, in the United States, there are a lot of people who have run or are ready to run to the nearest bridge and tunnel and hope that there's something better on the other side. Even in our industry, with all the talk about hoping that 2009 would end so that we can get cross that bridge to 2010 when things will be 'back to normal' is popular talk. But I am here to report (sounds official doesn't it) that things in the institutional real estate world have and are changing right before our very eyes. And the changes are not minor nor are they temporary (whatever that means). Some investment management firms will disappear. Others will merge. Investors will be much slower to come back to the game than we'd all like to think and when they do they will be talking a different talk than before. Sometimes tolls require small change and those tolls are easier for us to accept but others, perhaps most tolls, require big change and those tolls cause us to mutter, "Whathfok." But change is what life is about and we can either choose to change or be left out in the cold or left behind, choose your saying. Sometimes, in the day to day effort to grab the brass ring or even to meet the goals (some reasonable, others unreasonable) that have been established for us to achieve, we do not take time to step back to actually see what is going on. But some folks that I speak to are big picture people and when you combine that attribute with them having been around the industry for a while it's worth listening and learning from them because even though the bridge we're all crossing may look like a bridge we're familiar with, it's a lot different.

Last week I had a real treat. A joined a group of friends from Real Capital Analytics to go see "Memphis" on Broadway. Charlie Williams, son of Steve Williams of RCA is in the show. First of all, the show is really fun. But it was especially special to see Charlie, dancing, singing and simply having the time of his life on that stage in front of a sold-out house. The proudness and joy that his Dad felt was something we could all feel as well. Your son on Broadway: Priceless!

Lots of us say we'd like to write a book. One of our industry friends did just that. Craig Thomas, formerly of Torto Wheaton Research and currently with PNCBank has recently released, "Econosphere." I've read it and really like it. Here's a random comment on the book on Amazon: "As someone who has read his share of economics books, I can tell you that its seldom if ever you can find a book on the subject as well written and entertaining as the Econosphere. Even more rare is a book that can be enjoyed by professional economists and economic newbies alike, but this is it. Craig has a natural gift for explaining complex issues in a clear, concise and engaging manner. Well done!!!" A nice holiday gift (for yourself or someone else) can be found here.

Getaway find of the week: Vacation rental in San Diego (La Jolla), California (72 and sunny all year 'round). Owned by a friend. Very special. Check it out here.


Photo: Rockefeller Center Tree






These are my views and not that of my employer.

On the Road with Kid Patience

My uncle had a nickname for me when I was very small. "Kid Patience." Now this is not as picturesque a nickname as Kid Gallavin (the boxer), "The Comeback Kid" (John Elway) or even "Kid Rock." But it definitely fit me then and for many years, given that Type A personality shows itself very early on, it was totally appropriate. But with a lot of hard work (which continues), I have discovered the importance of patience and the ability to engage patience in decision making. The tools that Type A rehabilitation offers are healthy ones, designed to help you avoid having a heart attack. But it's not easy to fight off those Type A demons that are trying to drag you into the whirlpool of time urgency, free-floating hostility and the like. Certain events in our lives suggest that action be taken. And most of the time, those instincts are probably right-it's just the 'when and what' that are key to the right decision on action. As the end of the year that most people want to forget rapidly approaches and people start thinking about their plans and goals for next year (I may have told you at some point that this idea of writing down one's goals really makes a difference) perhaps some of us are thinking about what changes we may want to see in our lives, whether it be work related, relationship related, money related, project related or dream related. But take it from "Kid Patience", the brilliant person who coined the phrase "Patience is a virtue" was 'dead-on balls accurate' (I watched part of "My Cousin Vinny" again last night) and "All we need is a little patience' (Guns 'n Roses) when considering important things in our lives.

Last night I attended the only holiday party that I get invited to hosted by Real Capital Analytics. It's really a great cross-section of the commercial real estate community. I got a chance to have some really good talks with JC Goldenstein (Creopoint.com), Marty Nass (CT Partners), Ed LaGrassa (Chilton Capital Management), Zoe Hughes (Private Equity Real Estate), Patric Dolan (Reed Midem), Susan Kane (RCA), . I was also introduced to the fellow who is heading up Bloomberg Real Estate (but he didn't have a business card). This is a great time of year and it's like an annual reunion of sorts. Quite a few folks mentioned how sorry they were to hear that my Dad had died and that they had been following that situation through this column. I don't think I've really grasped the enormity of no longer having any parents alive and that I am now the elder statesman of our family. But from what many of you have told me, it takes time (and patience) to get through this type of traumatic event. So thanks again to all of you for your support and good wishes. I appreciate you all very much.

Howard Forman is a friend in Montreal who I have known for the better part of a long time. He is a truly accomplished musician who spent a number of years in the shadows of the hit making machine in Muscle Shoals, Alabama as a highly sought after guitarist sideman. Howard's band, "The Groove Kings" has had some commercial success, particularly in Canada but their recently released CD, "Blood Red" is a 'killer.' Here's the haunting title track, "Blood Red." But the album as a whole is truly worth your time and support (and let's not forget to share this link with others who you know love music).






These are my thoughts and not that of my employer.