ROBERT J. PLUMB: We’ve had a good year. We’re clearly not at
2007 levels, which is fine, and I’m proud of the type of investments
we’ve done. Not only do we invest in the four core property types,
but we also do other types of assets, such as seniors housing. We got
a lot of money in that space. We’ve also taken full advantage of the
need for capital in the market and have gone up and down the
capital stack with different types of transactions. One minute, we’re
buying a core office building, and the next, we’re doing a structured mezzanine debt deal for a large operator. We really take
advantage of the need for equity.
On the dispo side—at least in managing institutional client
capital—there’s a lot of change going on, not only on the operating level, but also on the pension funds. We’ve been moving assets
for them and trying to high-grade their portfolios and bring them
back into newer-vintage holdings.
have discipline, and we will adhere to our disciplined approach to
investing. We are predominantly core, and we buy value-add on the
“People think we’ve been in
this thing for a long time,
but we’re just starting.
CMBS, the pig in the python,
comes through here over the
next three years. It’s going
to be awful.”
ROBERT J. PLUMB
AEW Capital Management LP
CHARLES B. LEITNER: RREEF has been more active this year
than the prior couple of years. When you look at where the capital
is coming from, at least in terms of our client base, we’re seeing a
fair amount of demand from Europe and other offshore sources
for core US product. We don’t see as much demand for that from
the domestic side. We’re doing some tactical selling and some
opportunistic buying, too—when we think the pricing is right—but
a lot of people are looking for the same thing.
Yields are hard to reconcile, and there’s still a lot of risk out
there. So from an underwriting standpoint, we’re still trying to be
very careful on the buy side. If we have a client or a fund that’s
looking for some liquidity, we’ve been a seller in certain cases. But
there’s definitely been a big difference between the first half of
this year and the second half. It’s been really difficult to be aggressive, and I’m not sure if 2012 is going to be that different.
GERALD CASIMIR: This year has been a very robust year for us.
We closed about $4 billion in acquisitions, predominantly all
equity. If you look at the past three or four years, 2011 was
sort of a banner year on a relative basis, but if you look at our
average book of business over a longer period, 2011was
probably more of a normal year.
For the past four or five years, we’ve acquired assets
based on a target market strategy, which essentially focuses
on bi-coastal gateway markets. In 2011 we had a tactical
overweight to apartments because we saw good long-term
value. The slowdown in for-sale housing due to the economy and concerns over sustainable employment has benefited the for-rent apartment market. Our philosophy is to
buy positions in good quality, well located assets in high-barrier-to-entry markets.
In 2012, we will continue with that philosophy. Will it be
more difficult? We believe so, but nonetheless, we have to
MICHAEL G. DESIATO: CMBS issuance was predicted to hit
$30 or $35 billion in 2011. We were starting to head in the right
direction, but then the spigot shut off. What’s your perspective on the CMBS and debt markets in general?
TODD T. LIKER: It’s interesting, between the second half of 2010
and mid-2011, a lot of the aggressive lending associated with
CMBS 1.0 started to rear its ugly head again in CMBS 2.0. Lending
standards loosened and the banks that were in the CMBS business
decided to start aggressively bidding for those loans. Profit
spreads came in dramatically, and there was a general sentiment
in the market that the worst was behind us.
When Europe started to pull back, it forced a lot of
CMBS investors to pull back and ask themselves what type
of yields they really felt were warranted for this type of
paper. That’s what caused the CMBS markets to pull back
more than anything else. There was some concern from
bond investors that lending standards may have gotten a
little too aggressive too quickly, but it was primarily a sentiment shift with respect to the type of yield that was appropriate for this type of risk. This was true across the fixed-income markets, not just in CMBS.
PLUMB: No one’s going to do a loan when you don’t even
know what your rate will be until the day you close. CMBS
isn’t coming back any time soon, not at 6% borrowing
rates. No one is going to borrow that money; they’ll just
give the property back. So what you’re saying is there’s
going to be more properties going back.
There’s a tremendous amount of debt that needs to be refinanced. That’s the headlines for the next two years. People think
we’ve been in this thing for a long time, but we’re just starting.
CMBS, the pig in the python, comes through here over the next
three years. It’s going to be awful.
LIKER: In primary markets, cap rates have come in meaningfully
from the depths of the downturn, which means that further value
recovery becomes a question of cash flow. The problem is that, in
many cases, cash flow will struggle to recover meaningfully any time
soon. So if a lender restructures a loan in the hope of future value
recovery, the cap rate component has already played itself out. If
you’re waiting for cash flow to come back, you might be waiting for
a while because the cash flow picture could look pretty much the
same 12 to 24 months from now. So I agree, Bob. I’m not sure that
market dynamics support large amounts of new debt issuance
driven by refinancings, which would play an important role in driving new CMBS issuance.
“There’s $1.2 trillion of debt
coming due between 2012
and 2015. That’s going to put
more distressed product in
front of equity. From an
equity standpoint, that’s
a good thing.”