“We need to give businesses confidence to hire people, work on unemployment and make some hard decisions with regard to cutting spending and getting the fiscal house in order.”
Cigna Investment Management
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tried to do things in Southern California office,
but were outbid on assets with big vacancies,
and again, that goes back to the difficulty in
finding attractive pricing. We’ll do a couple of
apartment developments in Southern
California. Apartment development feels good
in many US markets right now
CARLSON: We’re really focused on core markets by and large. That said, we’ve looked in
Orange County, but Atlanta and Phoenix just
aren’t markets that we typically touch upon.
HIGGINS: Orange County is our Dallas on the
West Coast, meaning high growth and a desirable labor market, but active developers and
tendency to overbuild. People think of
California as a “barrier” market, with geographic and political restrictions on development. But Orange County, like Dallas, has the
ability to over-supply itself and always does,
with the resultant booms and busts to rents
and values. I have a longer-term hold perspective with the right asset in Orange County, but
given the current supply overhang, “doubling
down” at today’s pricing in Orange County is
not too appealing.
With respect to Phoenix, we’re acquiring
apartments there right now. We like the prospects for job growth and subsequent rent
growth in well located apartments in Phoenix
that we can acquire at attractive discounts to
replacement costs and going-in cap rates that
are close to 100 bps higher than in coastal markets. We won’t own them forever, but we like
the outlook for appreciation over the next five
years or so.
WALZ: Atlanta’s been categorized as a high-growth city and, historically, it has been.
Unfortunately, it appears that the Great
Recession has done something to Atlanta, and
the lack of job growth has created some problems for the city. The longer recovery takes,
you know, there will be some buying opportunities. Atlanta will recover. It’s just a matter of
PUMPER: Bill, what pricing are you seeing
based on the increased activity from
CARLSON: We did $350 million of lending
last year and that could reach $700 million
this year. Mortgage lending has been a pretty
attractive asset class from the standpoints of
spread and pure yield over the past 12 or 16
months. So there’s clearly been the opportunity for a disproportionate allocation to real
estate. That said, with the five-year Treasury at
one-and-a-half and the 10-year at 2.9%, you’re
starting to get pretty low yields and they
become less accretive for us as a company.
With respect to CMBS, it’s really not a factor
for us. We don’t compete at auctions for core
priced mortgage loans. That’s just not our
business. We try to be more value-add mort-