Global Equity and Debt Capital Flows Reshaping Urban Markets
To succeed in today’s challenging real estate environment, an investor must be able to identify targets of opportunity, assess the risks, act quickly and deploy resources efficiently, according to five capital market specialists speaking on a panel during at the University of Miami Real Estate Impact Conference Feb. 10, 2012.
“The great financial crisis created a tremendous opportunity for people with capital,” said Thomas F. Gilbane, managing member, Rockpoint Group. “It has been hard for the banks to be aggressive lenders and take any real risks in the past few years. That allows equity investors to step in and provide rescue capital.”
Gene Anderson, dean of the School of Business, opened the panel, “The Role of Global Equity and Debt Capital Flows in Reshaping Urban Real Estate Markets,” which in addition to Gilbane included Blake R. Berg, managing director, J.P. Morgan Asset Management; Tobin Cobb, co-CEO, LNR Property; Brian Harris, CEO, Ladder Capital; and Claudio Zichy, managing director, Independencia Asset Management.
“The University of Miami will be a catalyst for developing the intellectual capital needed to fuel economic growth, and we are targeting areas where we can contribute to the region,” noted Anderson in his opening remarks.
To kick off the discussion, moderator Steven Witkoff, chairman and CEO, The Witkoff Group and chairman of the School’s Real Estate Programs Advisory Board, asked the panelists if they were bullish or bearish about the future. One of the pessimists was Harris, who said, “I don’t think we’ll see a boom in real estate in the next ten years. To be successful you have to back to basic blocking and tackling on specific projects.”
For example, Harris said one of his firm’s strategies in the retail sector is to pick the best mall in the worst market, since it is mostly likely to be a survivor. “If you select the right sites and get the right prices, you can get great returns,” he said.
However, Gilbane added that windows of investment opportunity close very quickly.
“With the flow of information in our business, once you think you’re on to something, others figure it out right away,” he said. “Today, the real ‘buys’ are gone, and you have to be able to get into messy situations and fix the capital stack to add value to the asset.”
|Tobin Cobb (left), co-CEO of LNR Property, with Claudio Zichy, managing director of Independencia Asset Management|
On the bullish side, Zichy noted that many international investors want to put their money into U.S. real estate, including strong commercial assets. “It has been easy for us to raise money from South Americans who want to invest in the United States,” he said. “They believe that real estate values are attractive, and that ownership will also provide a hedge against inflation in the future.”
Cobb said that his firm has raised $350 million in new equity to invest in real estate debt. His company takes an opportunistic strategy, funding assets one or two at a time, since most investment deals are not attractive. “We don’t believe distressed loans are a good buy these days,” he said. “We have been more successful in legacy CMBS (commercial mortgage-backed securities) transactions, which require a large team to underwrite multiple assets.”
In general, real estate deals will be harder to put together in today’s low-rate climate, said Berg. “There are not a lot of institutional lenders and equity providers willing to go very far out on the risk spectrum,” he said. “While equity capital is coming back into the system, developers have to have a good business plan and be ready to execute at the top of their game.”
Berg added that his firm has focused on multifamily projects, but may be taking a pause on fresh investments until the nation’s job recovery appears more solid. He added that the firm focuses primarily on coastal markets, because cities like Miami typically outperform inland secondary markets. “If you can buy below replacement costs with low interest rates and in the urban core – that’s appealing,” he said.
Turning to Miami’s future, Witkoff and several panelists offered an optimistic viewpoint. “I sense that things have turned around here,” he said. Gilbane and Cobb agreed, pointing to Miami’s continuing ability to attract wealthy, intelligent people, as well as talented real estate professionals. However, Zichy noted that some large companies are choosing cities like Boston rather than Miami because of the presence of a larger skilled workforce.
Summing up the panel discussion, Berg said, “Capital goes where it’s best treated. If you have a good idea, pound the pavement and don’t stop until you find your financing.”