The 10th anniversary US real estate opportunity and private fund investing forum

Tuesday, June 23, 2009

The 10th Anniversary US Real Estate Opportunity and Private Fund Investing Forum in NYC.

Please review the following to learn about the highlights, we learned from this excellent Forum

• There is a lot of money sitting on the sideline
• Business expansion sitting on sidelines to see how new government might change the
"rules" (healthcare, taxes, capital gains, etc)
• Concerns about inflation, even though Real estate is a good hedge against inflation
• Most people seem to think we are still in the early stages, maybe the 3rd inning
• Leading indicators that we are coming out of this will be jobs, housing, and consumption
• Some think the recovery may be a jobless recovery
• Unemployment is really 16.5% when you include white collar workers not on unemployment and part -time workers looking for full-time jobs
• Some think the recovery will be a very wide "U" and not a "V"
• Housing market sales to stabilize in mid to late 2010; housing pricing should also bottom in mid to late 2010
• Housing ahead of the rest of the market in correction
• The baby boomer average age is 54 and peak spending age is 48; changing demo and age factor of baby boomer will slow consumer spending for several years
• Heard varying numbers but there is approx. 1.5+/- billion? in loans coming due in the next couple of years and estimates are that as much as 2/3rd's will not be refinanceable
• Markets that people seem interested in are the Southeast, Southwest, New York City, Boston, Raleigh, Texas, Pacific NW; interested in looking at where people want to live
• 40 year average of cap rates is approx. 7.8% and expect them to go higher over the next few years (9 to 10)
• On any future near term loans the banks will be looking for recourse and will make loans based upon 50% to 60% true LTV
• Banks are getting approx. $.45 to $.55 on the dollar on portfolio sales
• Banks are getting approx. $.55 to $.65 on the dollar on single asset sales
• Banks are getting approx. $.65 to $.75 on the dollar when they list and sell with a broker
• Most portfolio offers coming in at $.30 to $.40 on the dollar; still a wide gap between the ask and bid
• Most banks can not afford to take these kind of hits
• 20% of banks hold 80% of bad debt
• Smaller local banks more likely to trade assets
• FDIC currently has over 300 Banks on its watch list
• 2009 failure of 39 banks and thrifts
• Estimate that another 50 banks and thrifts will fail by end of year
• FDIC in temporary slow down; short staffed
• End of 3rd Qtr should see a pick-up in FDIC activity
• FDIC probably looking to do bigger auction sales; this may limit the number of qualified buyers
• Fee deals are few and far between but think there is a real opportunity to structure JV deals so banks can participate in the upside
• No flashing buy signals in any asset class now; everybody looking for opportunistic buys
• Most people think it is going to be a buyers market for several years we are still not at the bottom (which is impossible to guess) and the bottom will be asset class by asset class; multifamily most difficult to forecast, office and hotels are a disaster
• Grocery anchored retail still of interest and they are financeable
• Too many malls and too many strip centers
• Some think traditional malls and department stores are a dying breed; Power Centers are a dirty word
• Plenty of surplus and excess space and rental rates will probably continue to drop
• Retailers showing signs of year over year declining sales
• Everybody struggling to pay rent; concessions being asked for on a daily basis
• Numerous tenants (national, regional and local) filing for bankruptcy
• Virtually no new net demand
• When buying distressed centers look at location and try to decide what caused failure (changing demos, etc.)
• Lenders and owners are going to take a closer look at tenant credit analysis
• Recovery 2-3 years away on retail side
• Hotel overall market is very bad
• Hotel occupancies down 20-30%
• In-fill locations are the best opportunities
• Hotel branded assets have better upside; day of unbranded hotel is all but dead
• Resort Hotel market getting crushed
• Casino Hotels have a high barrier to entry; however they are starting to see big market hits
• Wide gulf between the bid and ask in the hotel market
• Bottom maybe 12 -18 months away for the hotel market
• Consensus that it is still too early to enter the hotel market by buying distressed assets
• Condo-Hotels a disaster and thinks you may be able to buy between $.10 to $.15 on the dollar; average hotel room is 450sf and average condo-hotel is 1200sf
• Hotels are operating businesses and not just a real estate play
• Public distress like a foreclosure greatly impacts Hotel NOI
• Key if entering the market is capital for infusion
• Land can be worth less than nothing due to development agreements, CDD fees, etc
• Land valuation very subjective
• Valuations based upon estimated hold periods
• If site has zoning, water, sewer, some infrastructure there is probably some value
. Big disparity in land between bid and ask
• Some think self storage looks to be recession proof
• 53,000 self storage facilities in US; most locally owned
• Seems to be equity available for smaller deals