Worth Repeating Spring 2010
"2010 Investment Outlook: Clear Skies Ahead?" Webinar, — January 14, 2010
Commenting on the current state of the industrial market, "There is a fair amount of capital looking for quality product. The major issue right now is wringing costs out of the supply chain. There’s no demand for the 500,000+ square-foot building. The interest now is in the 300-500,000-square-foot range in six to seven smaller buildings, provided the building is divisible."
On the re-emergence of CMBS, "Version 2.0 will have ‘skin in the game’ but we’re still in flux as to what that means. There’s a transfer of risk component and new accounting rules on ownership interests, among other things." Larry Harmsen, president of North America, ProLogis
In discussing the office market, "Pension fund investors took their pain early and, while cautious, are coming back in the market. The on-going bid/ask spread is making it hard to close deals. Recent transactions are dominated by less than $20 million transactions." Jeff Barclay, managing director, ING Clarion Partners
"The CMBS market was $75 trillion dollars in 2009 with 68 percent of loans in special servicing, representing nine percent of the total market. Most of it is not asset quality and a function of significant overleveraging based on prospective pro forma income." Kevin C. Donahue, senior vice president, Midland Loan Services, Inc.
Remarking on new debt availability, "Deal terms are like those of 2000: 70 LTV; debt service coverage minimum of 130; 12 percent debt yield; 25-30 year term; $200-300 million maximum. We are underwriting cash flows and focused on sponsor and tenant credit and market conditions."
"Buyers need more to be realistic regarding yields and owners need to be more realistic on the amount of capital required to refinance. There will be more pressure in the marketplace in 2010 than the past 18 months. We need capital markets execution from a CMBS-type product to reduce market stress." Michael Sarkozi, managing director, JP Morgan Securities
Solution Series Program, "What’s Working in CRE Markets Outside the U.S." — January 20, 2010
Commenting on the current state of the Canadian economy, "Large developers are very well capitalized so we’re not seeing highly leveraged companies. Our economy is stronger than the U.S. so there is less distress at the company level."
In discussing emerging industries, "Knowledge centers — education, healthcare and government — are the great growth sectors. With the recovering economy and a more competitive dollar, American industrial companies will be well-positioned and well-serviced to not just export but to manufacture and to do well in the next decade." "Foreign investors, particularly from Germany, are parking capital in Canada because they feel comfortable with the transparent environment, the governance and returns. Their interest is more on the core or stable end, not opportunistic."
Regarding when to get back in the market — "Timing is everything — if you feel comfortable with the economics of your model, that’s the time to get in. If you’re an IRR model maker, make sure things are moving in the right direction on the uptake because you have to carry through a down market. The cost of time eats into your returns. If you’re a back-end loaded participant in terms of success fees or modeling, it will eat you up."
Michael Pittana, managing partner, Crown Realty Partners