Courtesy of some CRE Analyst readers….
General themes
Sam Zell – Keynote Speaker
Equity panel
Structured Finance Panel
Todd Sullivan
http://www.valueplays.net/
Editor: Here is a video from CNBC discussing CRE, with Harvey Green, Marcus & Millichap president & CEO and CNBC's Matt Nesto.:
General themes
- Unlike most other recessions, we are in a “demand” recession – when the economy recovers, absorption should occur relatively quickly; however at 30% lower rents
- Full buildings will have debt in excess of value, but very little motivation for owners to sell – deleveraging is inevitable
- Result – fewer foreclosures; most owners will seek new infusion of capital with heavy dilution to existing equity (“Hope certificates”)
- Current owners are unlikely to realize much value
- Portfolio lenders such as pension funds/life companies are lending cautiously at low LTVs – 50-60%
- 2010-2012 – an estimated $1.3 to 1.8 trillion of mortgage debt is expected to mature; where will the debt come from?
Sam Zell – Keynote Speaker
- In an era of extend and pretend – low interest rate environment keeping loans current
- Predicts low interest rates in the foreseeable future (18-36 months)
- Necessity is mother of invention – formation of REIT market in early 90s due to complete lack of capital (Equity Residential – 100% private ownership at 90% leverage; ended up owning 20% of company that was 40% leveraged)
- Many private firms will seek capital from the public market
- Does not see grave dancing opportunities except for the hotel sector
- Back then it was “Stay alive until ‘95; today it is come clean by ‘13”
- One possible scenario for banks to come clean – banks are enjoying extraordinary earnings (7-8% margins) which can be used to offset the hit on impaired assets
Equity panel
- It is extremely difficult to raise new capital in the current environment
- Many investment shops have raised significant amounts of capital in 2008 and have deployed very little since then
- Westbrook – 2.8B
- AREA – 2B (US), 1B (Europe), 300MM (India)
- Vornado – 1.8B; 2.6B Credit facility
- Tishman Speyer – 2.2B (total across all funds US, Europe, Brazil, India and China)
- Walton Street Capital – 1.3B
- ING Clarion – 500M
- Mack Cali – 300M
- Very little activity in the past 2 years – owners are not forced to move assets
- Broken development deals, hotels and condos are very risky but can provide great rewards
- Most view recapitalizations as the best opportunities on a risk adjusted basis
Structured Finance Panel
- Funds that once targeted mezz positions are focusing on the senior pieces
- Most players are waiting on the sidelines; anticipate cap ex problem for owners who are playing the extending game
- Some firms are becoming more flexible on investment targets – looking at distressed debt, loan to own, or new loan originations
- The government is extending and pretending with banks – quote by Abe Lincoln “You can’t fertilize the field by passing gas over the fence”
Todd Sullivan
http://www.valueplays.net/
Editor: Here is a video from CNBC discussing CRE, with Harvey Green, Marcus & Millichap president & CEO and CNBC's Matt Nesto.:
