This past Thursday the NYU Schack Institute of Real Estate held its 42nd annual Capital Markets Conference in the Grand Ballroom of the Waldorf-Astoria Hotel. Some of the biggest names in real estate were in attendance. Sam Zell kicked off the event as the keynote speaker (seems like he is everywhere these days). It’s hard not to admire Sam Zell, he’s made billions of dollars, travels the world riding his Ducati’s, says whatever he wants and his EOP deal was arguably the greatest deal of all time (we’ll overlook the whole Tribune mess). With that in mind, here are the major points of Mr. Zells’ presentation:
- This was a demand recession, supply will be absorbed, albeit well below underwritten rates.
- The impending commercial crash is greatly exaggerated.
- New development will remain contained in the foreseeable future and institutional investors will step up to give much needed capital infusion to distressed property owners.
- The opportunity lies in recapitalizing assets, thereby diluting the current owner. The current owners are unlikely to realize much value.
- We’ll “likely to see the kind of a massacre in the hotel industry, similar to what office (property) saw in the early 1990s.”
- The low interest rates will hold for 18-36 months.
- It’s more important now than ever to be a real estate guy, someone who’s been in the trenches, not just someone who plays with the numbers.
- Sam Zell even took a shot at Wilbur Ross saying – “All new savants on commercial real estate like Wilbur Ross, I find that their comments are inversely related to their knowledge of the industry.”
- It’s all about supply and demand, everything else is secondary.
- He left the crowd with one thought….”come clean by 13″
My favorite presentation of the day was given by Dr. Peter Muoio, principal at Maximus Advisors. I’ve embedded all his slides below, but here are some of his major points:
- His research shows it’s time to shift focus to the next stage of the real estate cycle – the shape of the early recovery.
- Fundamentals for each property segment will improve at varying rates.
- Property prices will fall between 42% and 52% when all is said and done in this down-cycle, implying that the market has seen approximately 75% to over 90% of its expected valuation decline.
- Apartment valuation declines will tail-off sooner – in 2010 by our estimates – compared to other property segments, and will see a faster pace of recovery in 2011. By contrast, national office and retail valuations will be constrained into 2011. However, our expectation is that as capital markets improve from crisis levels and commercial real estate credit re-emerges, the impact on retail and office segments will be more significant than on apartment properties since multifamily has benefited from continuing financing by the GSEs, which has limited the cap rate expansion in that sector compared to the other property sectors.
- See the full report below:
The final panel of the day, entitled “NYC – Still the Golden Apple”, included some real heavy hitters including Marc Holliday, Stephen Ross, William Mack, and William Rudin. They didn’t say anything earth-shattering, just reiterated some of the major points of the day. What really caught by attention was the final question of the day, What advice can you offer young people entering the real estate industry today?
Stephen Ross – Think globally – China is like the U.S. in the 1950′s (investing in infrastructure), look at Saudi Arabia (70% of the population is 22 or younger), consider Brazil (they are heavily tied to China through their exports).
William Mack – “Be as broad-looking as you can, I like China and India.”
William Rudin – “Think about wealth accumulation.”
Marc Holliday – “Access capital and get into the markets at the right time.”
I think these responses were very telling. In a panel discussing how New York City is still the Golden Apple, most of the panelists advice focused on the international opportunities, says a lot about their short-term outlook on the local market.
Where do you see the opportunities for young people entering the business?
Similar Posts:
- Sam Zell, Steve Roth and Bill Mack – The View From 10,000 Feet
- Milken Conference – Reviving Commercial Real Estate Panel
- What I Heard from the Global Property Leaders at the ULI Spring Convention
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While Zell might not be the Oracle of Delphi, he's pretty damn close.
While Zell might not be the Oracle of Delphi, he's pretty damn close.
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