Cautiously Optimistic

ATLANTA (March 12, 2010) In a meeting held yesterday in Philadelphia, a panel of experts echoed the cautious optimism that has been expressed in commercial real estate circles since the start of 2010 according to the online news outlet Globe Street.

A town hall style panel, was moderated by Rich Gottlieb, SVP of Operations and Development at Keystone Properties Group. Panelists included Matthew Pestronk at Ackman-Ziff Real Estate Group, James Mazzrelli at Liberty Property Trust, Brandywine Realty Trust’s Jeff DeVuono, Spencer Yablon at Marcus & Millichap, Anthony J. Hayden at Hayden Real Estate Investments and PNC Real Estate Finance’s Sean Costello. Most speakers were optimistic about the years ahead.

According to Yablon, “There are more retail shopping center deals north of $10 million now and life companies are stepping up more aggressively.” He also noted that cap rates are starting to normalize. “In the last 60 to 90 days, we have seen retail deals that have closed at a 7.5% to 8% cap rate, almost 150 basis points higher than where we were one year ago.” He noted that for multifamily cap rates are even south of 7%.

In a Q&A session, William Hankowsky, Chairman, President and CEO of Liberty Property Trust said his company is keeping development to a minimum. “We would only do build-to-suit now, which is more than we could say last year.” The company is currently in talks with 12 businesses about real estate transactions. And while the company had scaled back operations last year, it is “back to operating like things are normal,” said Hankowsky. A major area of interest right now is purchasing both stabilized or vacant assets. When asked about the wave–or lack thereof–of distressed assets, Hankowsky noted that “banks will eventually be able to take command once they build up their balance sheets, but distressed opportunities will ooze out; it won’t happen in a great wave.”

The Commercial Tenant Resource is glad to see developer restraint because that will allow the first few steps of the recovery in the commercial real estate sector. The fact of the matter is that even if developers – who are some of the most risk tolerant individuals in the US – were to want to build, they couldn’t easily get financing. Even build to suit transactions with signed leases by great credit tenants are have difficulty getting financing as we enter the Spring of 2010.

The other issue to note is that many in our economy are feeling optimistic but are looking for validation in multiple sectors of the US. The asset side of commercial real estate will not help very much with that validation exercise until sometime next year.

However, real estate is a lagging indicator of recovery, so keep an eye on the manufacturing indices, consumer spending and of course employment for a real pulse as to what is happening in our economy.

In our opinion based on conversations with our clients and many other middle market companies, recovery is well underway. It has started rather tentatively and is now beginning to gain steam. You can be sure that we will keep you up to date on our observations on this front.

Source: Globe Street coverage of Real Share meeting in Philadelphia March 12, 2010.

Ken Ashley

4 responses to “Cautiously Optimistic

  1. Good marketing Ken.

  2. Good analogy, Ken, on how brokers can learn something from the way luxury cars are sold. It reflects something I observed in my latest Industry Tracker column for CoreNet Global’s LEADER Magazine: We need to jump the curve and find new models for our industry, and that savvy brokers grasp the importance of long-term reward via the strategic value, not transactions, model. Lately I’ve been following people like you who are good examples of how innovating away from the brokerage-transactions model, yet still incorporating brokerage expertise, is becoming crucial.

  3. Great article Ken. Thank you for this useful insight. Your article addresses a key question for real estate investors who are anxiously monitoring the pulse of the US real estate market. The world has gone global and so when when one state sneezes many others catch a cold. The St Lucia real estate market, no doubt, like so many others has been negatively impacted by the US housing crisis. So with bated breathe and eyes, real estate investors have been watching and waiting for some sign of long-term recovery in the US property market. Your article provides useful indicators. Personally monitoring and evaluating factors like employment, manufacturing, mortgage rates and bank performance, consumer spending and other indicators becomes particularly important in real estate markets like St Lucia where one does not have the convenience of relying on the regular release of industry reports or indices. Real estate investors therefore have to position themselves to be able to consistently monitor real estate market trends and economic developments in order to accurately predict the recovery of the St Lucia real estate market.

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