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Takeaways from NYUSPS Schack Institute’s Capital Markets Conference

Real Estate professionals discussed topics including debt and equity flows, institutional capital and non-bank lender activity.

The Annual Conference on Capital Markets in Real Estate, hosted by the New York University School of Professional Studies’ Schack Institute, gathered commercial real estate finance and investment pros to discuss some of the biggest trends shaping finance and investment in the industry.

The 52nd annual was held Thursday, Nov. 14, at The Pierre in New York City.

Here are some major takeaways from the conference:

  • Nick Azrack, managing director at The Baupost Group said although current high prices for CRE are worrisome, his firm has a higher cash balance now than it did five years ago. He added there are still good deals to be found in the marketplace. “We are without a doubt late cycle, the calendar will dictate that,” said Azrack. “This has been one of the longest booms in history. Pricing has been climbing steadily upwards and basically erupted upwards after the end of the crisis.”
  • “There [are] a lot of people out there originating for CLO exits, I think that’s a fool’s game,” said Jeffrey Dimodica, managing director at Starwood Property Trust. “I would never originate a loan to go into a CLO because I don’t know if the market will be there when I exit.”
  • “One of the flexibilities we’ve had by using our balance sheet for the past 10 years is being able to find the best risk-adjusted returns that we think are available in the market, and not having to fit within an opportunistic box, which is really the way our business ran for the better part of the 1990s and early 2000s,” said Jeffrey Fine, managing director at Goldman Sachs. “Nothing is cheap right now, but we are able to find certain situations where we’re able to buy good assets and earn good cash flow.”
  • “We haven’t been big investors in New York, we haven’t been big investors in Washington D.C. They are places where we’ve seen less job growth. We’ve seen the supply and demand dynamics really not make sense for the returns we’re trying to generate,” said Fine. “In places like Nashville, Austin, and Denver, companies are moving there, young people are moving there, there’s an affordability component to it. We’re looking places in Texas where tax rates are having a big impact.”
  • Fine added, that it is getting harder to sign long-term leases with long-credit tenants. “The whole sector is starting to look more and more everyday like the hotel business or the multifamily business, where it’s shorter term stays,” Fine said.
  • I’m not saying there aren’t cycles, but I just wonder whether as the whole investment management system has matured, should we be looking at a different lane, and not just be thinking about one big crash?” says Cia Buckley Marakovits, chief investment officer at Dune Real Estate Partners. “Can you have a cycle if you’re not hardly overleveraged?
  • Wendy Silverstein, a former co-head of WeWork’s real estate investment arm ARK, points to the inflated economy “deliberately put there” by global low interest rates.  “There’s $17 trillion worth of negative interest rate debt in the global marketplace. That hasn’t even hit the U.S. yet.”
  • Foreign investment in the U.S. has fallen slightly, mostly due to China pulling back, said David Gilbert, chief executive and investment officer at Clarion Partners. But Canada invests heavily into U.S. markets. “I think it’s important to keep in mind while Canada is dominant now, depending where we are in the cycle and where other countries are in their cycles, there’s going to be some movement there,” added Sam Chandan, Larry & Klara Silverstein Chair in real estate development and investment and associate dean at NYUSPS Schack Institute of Real Estate.
  • The U.S. 1.94 percent global 10-year bond yield is the highest in the world. “If you can invest in the most liquid markets in the world, in the safest markets in the world and the highest yielding markets in the world, we think you should do that,” said Greg White, managing director at Prima Capital Advisors. “I think at the end of the day that’s the best explanation for why capital is flowing here.”
  • A panel examined the rise of non-bank lenders in the CRE space. “Debt funds are up 15 percent [over] last year because there’s a lot of institutional capital that recognizes you can get equity like yields but have the protection of debt,” said Tammy Jones, chief executive officer at Basis Investment Group. “Secondly, when the treasury and LIBOR was up, we saw a lot of request for gap equity, our bridge pipeline is way up. There’s so much of a focus, especially in the middle market, for value-add strategies as investors are searching for yield.”
  • “There’s a lot of places you need to be more cautious. Office you need to be careful of your coworking tenants, retail we’re all fully aware of what’s going on in retail, multifamily there’s obviously an issue of rent stabilization,” said Andrea Balkan, managing partner at Brookfield Real Estate Partners. “But, I think despite that there’s a lot of really attractive deals. We see the equity buyers still buying assets, and we see a lot of smart borrowers looking to capitalize their assets appropriately.”
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