20 REAL ESTATE FORUM JANUARY/FEBRUARY 2017 www.globest.com/realestateforum
12th Annual Capital Markets Symposium
STEVE PUMPER: The 10-year rate has risen since the election
took place. What does that mean for your organizations on the
acquisition, disposition or lending side?
PETER SIBILIA: Yes, there’s been an increase but if you compare it
to January 2016, it wasn’t a big one. That doesn’t mean we’re not
worried about it; the percentage increase is very high. So we’re
watching the 10-year very closely as it relates to real estate pricing.
Some of our research folks would say there’s really no correlation
between cap rates and interest rates. That’s probably true over a
very long term, but given where we are right now with rates and
acquisition activity in general, continued increases throughout
2017 could have an impact.
In terms of opportunities, we’ve already seen some in that there
aren’t a lot of takers in the marketplace right now, particularly on
the domestic front. The challenge has been the wide gap between
the pricing expectations of sellers and buyers. If there’s some meeting of the minds there, you could see a fairly productive 2017.
GARY RUFRANO: We haven’t seen a meaningful effect on pricing,
either. It will eventually impact the the more highly levered secondary or tertiary place—there have been a number of retrades and the
like, and for net-lease buyers, the increase has obviously had a huge
impact on their overall returns. But for the class A product we’re
looking at, we have not really seen much of a pricing discrepancy.
TUBA MALINOWSKI: In terms of acquisition and disposition activ-
ity, we don’t expect higher rates to meaningfully impact the Smart
Markets Fund’s activity. As a core fund with minimal leverage, we
underwrite with a focus on unlevered returns and conservatively
use debt only to enhance returns. The highly levered buyer pool is
more worried about it. The positive thing is that the supply pipe-
line is slowing down because it’s now more difficult to get construc-
tion financing, particularly for multifamily development. I’m actu-
ally more optimistic about multifamily than I was 12 months ago,
when it looked like supply growth just wasn’t going to end.
DENNIS SCHUH: From a lending perspective, a rise in LIBOR is
actually beneficial to our existing loan portfolio. Yet while I think
an increase in rates is a healthy thing for the economy, we’re still at
historically low rates and all-in borrowing costs. We are seeing a lot
of interesting lending opportunities; we just need to sort of pass
through this phase of uncertainty. While higher rates have been
threatened for a long time, they’re actually a sign that the economy
is on generally good footing.
DIMPESH DARJEE: Interest rates would have to rise by at least 100
to 200 basis points before we see any significant impact on valuations. There’s a whole generation of fund managers who are accustomed to low rates and may fear rising interest rates because
they’re not accustomed to it. However, when interest rates rise,
companies like ours are inherently more profitable, because it
makes the tide rise as a whole. That, in general, will continue to
spur investment, which will help the economy. So I think initially
people may fear it, but will come to terms with it pretty quickly
because of all of the other positive factors.
JOHN EHLI: Real estate returns can be strong whether it’s a low
or high interest rate environment. In fact, some of the better
returns have come at points in the cycle where we’ve had higher
interest rates. If rates don’t move too quickly, then real estate
investments can continue to perform well.
Following a year in which the commercial property investment market scaled new heights, 2016 may have seemed
like a falling-off. In fact, it was one of the strongest years on on record, even if it was also a year buffeted by the
headwinds of global, and domestic, uncertainties.
In 2017, that climate of uncertainty is likely to persist. The new administration’s policies appear to be giving the
commercial real estate community some cause for concern as well as reasons for celebration. However, if anyone is
prepared to realize opportunities amid the question marks, it’s the industry heavyweights who participated in the
12th annual Capital Markets Symposium. Hosted by REAL ESTATE FORUM and Transwestern in December, the discussion covered topics ranging from conditions in markets and property sectors to what they see in store for this year.