employment growth and occupier demand
for healthcare real estate over the coming
years. So, in addition to senior housing, we
are focused on opportunities in submarkets
where the healthcare industry is a meaningful demand driver, which include life-sci-ence and medical office properties.
WERNER: We have been focused on the
life science office sector. Within our 11 million square foot portfolio, we’re seeing
healthy demand fundamentals. Cambridge,
MA is probably the best market in the
country with vacancy at 1% and rents up
10% to 11% this year. In addition, we are
seeing strength in all of our core life science markets including San Francisco, San
Diego, Seattle and Cambridge, UK.
PUMPER: In terms of year-over-year
transaction volume, multifamily was up
14% and office was up 15%. In the third
quarter, retail was up 90%, to $28.4 billion, and 40% of that was in the mall
sector. A big part of that was due to the
Brookfield-GGP merger, but single-asset retail sales are up 8% year over
year. Overall volume increased 17% to
hit $152.7 billion in the third quarter,
along with 7.2% in price appreciation.
Is that surprising to anybody?
MALINOWSKI: It’s not surprising to me.
Our volume was up in 2018. Keep in mind
that there were a lot of deals at the end of
’ 17 that closed in ’ 18. You had some big
Eight years ago we launched the core
fund in 18 markets including Nashville,
Raleigh, Charlotte, Portland. At the time
when we went to market, various consultants
said, “Wow, you’re investing in secondary
markets.” Today, those markets are crowded.
Charlotte is a market in which we’ve been
overweight since day one. A lot of our competitors didn’t even think about Charlotte
and now, they’re all there. So it’s not surprising that transaction volume is high.
As for other sectors, right now we all want
to buy industrial. So value is going to have
to go toward retail and some type of office
because even vacant industrial is pricing
PUMPER: When ULI met in Boston
toward the end of 2018, there was much
discussion about interest rate increases,
tariffs and an inverted yield curve. A lot
of people were saying once you hit that
inverted yield curve, there a higher like-
lihood of a recession.
WATKINS: About 90% of the time, 12 to
18 months following such an inverted yield
curve, there is a corresponding recession.
That’s something that we’re watching very
closely. That being said, hopefully the Fed,
with its interest rate hike at the end of 2018
and the three they’re talking about for
2019, can moderate their behavior, perhaps learn from their prior mistakes.
Maybe the Fed will realize they’re overstepping and dial those adjustments back. So,
there is the chance we’ll avoid a recession
or at least minimize a downturn.
DESIATO: It seems that over the past
60 to 90 days, people have been waiting for something to happen, for the
other shoe to drop, whatever it may be.
What’s giving you a little pause or what
metric are you trying to monitor?
WATKINS: China. A full-scale, prolonged
trade war with China would significantly
dampen financial market sentiment and
lead to slower economic growth in the US
and globally. If such a situation occurred, it’s
forecasted to reduce annual real GDP growth
by 1% for the U.S. and 1.5% for China
EHLI: The amount of national debt has
always been a concern of mine and it will
likely become more prominent as interest
rates normalize and debt service takes up
an increasingly larger portion of the federal budget. The convergence between this
and the multiple attempts to cap the
amount of outstanding federal indebtedness could result in even more contentious
in an already divided Congress.
MALINOWSKI: I continue to worry about
labor. We’ve got to figure it out the lack of
labor, and some of the policies today aren’t
WERNER: I would say one issue we are
focused on is cost inflation, in particular
on the labor side. On hotels, we are seeing
4% to 5% annual inflation and senior
housing is even a little bit above that.
These inflationary pressures may push
interest rates up.
On the flip side, growth is likely to be bet-ter than people expect. For example, if you
look at the demand side of hotels, which is a
pretty good forward indicator, we continue
to see good forward bookings. ◆
Usually about 12 to 18
months following an inverted
yield curve, there is a
Hopefully the Fed will realize
it’s overstepping on interest
rate hikes and we can avoid
The amount of national debt
has always been a concern
and it will likely become
more prominent as interest
rates normalize and debt
service takes up an
increasingly larger portion
of the federal budget.