BILL CARLSON: I agree with a lot of what Len said. We’re very
market-specific with our strategy. We’re looking at multifamily in a
handful of markets, and there, it has to be about the job growth
and single family affordability. While we’re certainly mindful of
weak local or national economic conditions, we’re careful to not
have our thought process be too negatively impacted if we believe
there are some fundamental positives with respect to either a property type or a specific asset. That being said, the economic news
that we’re bombarded with in print or on television is so binary that
“The past couple months have been disappointing and we will probably be revising our economic outlook.”
GARY KAUFFMAN
Prudential Real Estate Investors
it’s hard to make a connection between the good points and the
bad points. So we move cautiously as investors, try to be accurate
assessing the fundamentals and be ready to own the real estate we
buy for a while.
STEVE PUMPER: Are you holding more of a core strategy right
now, Bill?
CARLSON: No, we’re not, because we’ve never been a core
player. Cigna’s strategy for investing in real estate has been in
higher-yielding assets than core. So it’s either new development
or value-add acquisitions at below replacement costs in select
markets.
GARY KAUFFMAN: We’re struggling to understand where the
economy is going. Earlier this year, our economist was convinced
that the recovery was well under way and he was expecting a
quarter million new jobs per month. Obviously, the past couple
months have been disappointing and we will probably be revising our economic outlook. With regard to investments, we’ve
focused on specific markets and typically, that involves concentrating on markets with great educational infrastructure and
human capital in cities like New York, Austin, Seattle, San
Francisco and Boston. That said, the struggle for us this year has
been finding good pricing in the markets and asset types where
we like to invest.
GREG WALZ: Our outlook for the overall economy is still fairly
pessimistic, but as the other panelists have indicated, there are
pockets where there is some recovery happening. We like the
Texas markets, but you take Washington, DC or New York City,
and we haven’t been active acquiring assets in those markets
recently. We’re much more geared toward the development side,
and we’ve got a number of multifamily projects that are under
development. The theory is, if you get in early in the right markets and submarkets, you should do okay. Construction pricing is
still reasonable. Land prices, generally speaking, have come
down, depending on where you are. So we’re finding some activity. On the debt side, we’re also doing some permanent construction loans. They’re isolated situations that happen to be submar-ket- and borrower-driven. Who the borrower is and how much
equity they’re putting in is one of the real keys on the debt side.
PUMPER: The perfect unemployment number was maybe 5%.
In what’s called the new normal, would it be closer to 6.5%?
And if so, are we utilizing that when underwriting things moving
forward?
ROD VOGEL: In terms of job growth, we’re tracking about where
we thought we’d be. GDP is probably slower than we anticipated.
Our concerns are focused more on 2014 and ’ 15. Can we pay off all
this debt? That’s about the time when we could be exposed. So
we’re trying to compete today but underwrite for the possibility of
a mild recession in 2014 when leases are rolling or newly built
apartments are stabilizing. Right now, we think that the economy
will pick up, but we’re not going to come out of this recession like
some in the past where we’ve seen 5% or 6% GDP growth. We’re
utilizing that outlook to try to buy assets. As Gary said, the pricing
is challenging, and we’re buying both core and value-add deals.
There’s a lot of competition pushing pricing at levels that make you
a little uncomfortable, that’s for sure. Our projections indicate the
unemployment rate will eventually drop to the 5% to 5.5% range.
Unfortunately, it’s likely going to take until about 2017.
MARK HIGGINS: I’m sticking with the position I took a year ago,
with help from our Research Group, that there isn’t going to be a
double-dip in the US. Until about a month ago, it looked like the
economy had achieved what one of CNBC’s talking heads called
“escape velocity,” meaning consistent GDP growth of more than
3% that leads to a full recovery. Now that previous economic data
has been revised downward, it appears we have remained at a relatively anemic 1.5% to 2% growth, meaning the economy is still
fragile. Our fundamental projection for the US economy in the
next five years is slow growth. On balance, we’re fairly bullish with
a positive outlook for real estate assets in major markets. Rents are
poised to grow again as the economy recovers because all property
types are not nearly as overbuilt as they were coming out of the last
major recession in the early ’90s. Hotel rates and apartment rents
are leading the way in most major markets, but office rents have
also begun to grow in San Francisco; Dallas; Washington, DC; New
York; and Boston.
DESIATO: It always seems in these panels that everybody says
that multifamily was their darling. That hasn’t changed. What
other asset classes are you looking at?
WALZ: There was a time when the GSEs took us out of the market,
“We’re trying to compete today but underwrite for the possibility of a mild recession in 2014.”
ROD VOGEL
Principal Global Investors
and probably from ’07 through ’09, we didn’t do any multifamily.
Now it’s fairly significant, and I’m glad because it’s filled the void
left by other product types where we aren’t as active.
O’DONNELL: We’re actively financing multifamily development
and we love the fundamentals in this sector. However, we maintain a
core, stable industrial portfolio and we’ll continue to be a core buyer
in that sector, but we’re also starting to look at some industrial devel-
