The 10th Anniversary US Real Estate Opportunity and Private Fund NYC

June, 29th 2009, NYC 

• 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