Business Specialties
Investment
Jun 25, 2009
By: Suzann D. Silverman, Editor-in-Chief
From the historical baseball metaphor to hurricane terminology, speakers at the first Cityscape Connect business breakfast yesterday evaluated commercial real estate’s recessionary progress—and agreed to disagree.
ING Clarion managing director David Lynn placed the industry in the fourth inning—“not quite halfway there yet and we’ve got a long way to go”—while moderator and NAI Global president & CEO Jeffrey Finn noted he has heard it described as being still in batting practice. On the storm side, Amerimar Enterprises Inc. president & CEO Gerald Marshall decided the industry is currently in the eye or just coming out of it, since people knew the subprime bubble was destined to burst as early as 2005, while Baker & McKenzie L.L.P. head of real estate Gerard Hannon said that from a legal perspective it is not in the eye yet, given the amount of work still to go.
The government’s success at coming up with solutions was also a subject of dissension, with Praedium Group director Mark Lippmann saying it is doing the natural thing by giving the banks a chance to repair their balance sheets and Lynn acknowledging that TARP funds have made a difference, although he also declared the federal approach too close to Japan’s painful efforts—as well as to the slow removal of a Band-Aid. And Hannon insisted TARP and TALF have had no effect.
Whatever the government’s level of success or the stage the market has reached—and that is a question widely debated, with little historical background on which to make predictions—the panel, addressing the topic “Looking Beyond the Crisis” during a breakfast discussion in New York City, did agree that the banks have a lot to work out but investment opportunities are emerging.
“The banks have got to realize some of the losses of real estate, and I think they’re defining that,” observed Lynn. He does not expect a turning point before early to mid next year, since the lack of investment deals has prevented a value floor from being established. He also predicted a five- to six-year hiatus before the CMBS market can be worked out, redefined and relaunched.
Also complicating the ability to value properties is the fact that prices have not yet dropped sufficiently. “If (banks) were to sell (foreclosed properties) today at the prices offered, they’d be insolvent,” declared Glenmere Capital Partners partner Ruth Barone.
Working out the debt structures of recent years is also a problem, according to Lippmann, who expects to see more smaller banks fail even if larger banks are prevented from doing so. Debt structures have so many layers that figuring out who owns what portions is leading to “tranche warfare,” he said; as a result, resolutions will come as a trickle rather than a big wave.
But Marshall said his firm is actively investing. Among good choices, he noted, is strategically placed pieces of land that can be purchased inexpensively and on which entitlement and other planning efforts will take five years or so to achieve. There are also opportunities to make equity-level returns with lower levels of risk by investing in debt. He advised against investing in retail properties, but Hannon pointed to some high-end retailers that are taking advantage of pricing in this economy by shutting down some locations and opening others.
In the meantime, a certain amount of pain needs to be worked through. Foreclosures will be necessary, Marshall said, querying, “We know exactly what to do—do we have the courage to do it?” Put in Barone: “We leveraged our way into this and we’re going to have to leverage our way back out of it.”
The event launched a new series of business briefings produced by Cityscape.
By: Suzann D. Silverman, Editor-in-Chief
From the historical baseball metaphor to hurricane terminology, speakers at the first Cityscape Connect business breakfast yesterday evaluated commercial real estate’s recessionary progress—and agreed to disagree.
ING Clarion managing director David Lynn placed the industry in the fourth inning—“not quite halfway there yet and we’ve got a long way to go”—while moderator and NAI Global president & CEO Jeffrey Finn noted he has heard it described as being still in batting practice. On the storm side, Amerimar Enterprises Inc. president & CEO Gerald Marshall decided the industry is currently in the eye or just coming out of it, since people knew the subprime bubble was destined to burst as early as 2005, while Baker & McKenzie L.L.P. head of real estate Gerard Hannon said that from a legal perspective it is not in the eye yet, given the amount of work still to go.
The government’s success at coming up with solutions was also a subject of dissension, with Praedium Group director Mark Lippmann saying it is doing the natural thing by giving the banks a chance to repair their balance sheets and Lynn acknowledging that TARP funds have made a difference, although he also declared the federal approach too close to Japan’s painful efforts—as well as to the slow removal of a Band-Aid. And Hannon insisted TARP and TALF have had no effect.
Whatever the government’s level of success or the stage the market has reached—and that is a question widely debated, with little historical background on which to make predictions—the panel, addressing the topic “Looking Beyond the Crisis” during a breakfast discussion in New York City, did agree that the banks have a lot to work out but investment opportunities are emerging.
“The banks have got to realize some of the losses of real estate, and I think they’re defining that,” observed Lynn. He does not expect a turning point before early to mid next year, since the lack of investment deals has prevented a value floor from being established. He also predicted a five- to six-year hiatus before the CMBS market can be worked out, redefined and relaunched.
Also complicating the ability to value properties is the fact that prices have not yet dropped sufficiently. “If (banks) were to sell (foreclosed properties) today at the prices offered, they’d be insolvent,” declared Glenmere Capital Partners partner Ruth Barone.
Working out the debt structures of recent years is also a problem, according to Lippmann, who expects to see more smaller banks fail even if larger banks are prevented from doing so. Debt structures have so many layers that figuring out who owns what portions is leading to “tranche warfare,” he said; as a result, resolutions will come as a trickle rather than a big wave.
But Marshall said his firm is actively investing. Among good choices, he noted, is strategically placed pieces of land that can be purchased inexpensively and on which entitlement and other planning efforts will take five years or so to achieve. There are also opportunities to make equity-level returns with lower levels of risk by investing in debt. He advised against investing in retail properties, but Hannon pointed to some high-end retailers that are taking advantage of pricing in this economy by shutting down some locations and opening others.
In the meantime, a certain amount of pain needs to be worked through. Foreclosures will be necessary, Marshall said, querying, “We know exactly what to do—do we have the courage to do it?” Put in Barone: “We leveraged our way into this and we’re going to have to leverage our way back out of it.”
The event launched a new series of business briefings produced by Cityscape.
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