Commercial Real Estate Outlook- 2015 and Beyond
December 17, 2014
Over the past two months, the dealer has reshuffled the deck and reissued the cards, according to Thor Equities CEO Joseph Sitt. Oil prices are dropping, the U.S. dollar is strengthening, capital has a voracious appetite for the growing tech industry, and falling commodities have flipped the world upside down, he told the crowd of over 250 real estate principals and senior executives at EisnerAmper and Bloomberg’s “Commercial Real Estate Outlook: 2015 and Beyond” breakfast forum on Dec. 11 at Bloomberg’s 731 Lexington Ave. headquarters.
With BRIC countries pulling back due to economic and political issues, the U.S. is at the forefront of growth. Technology and its interrupters (think companies like Uber and FlyCleaners) are leading the way, Sitt says. Cities like New York, San Francisco, and Chicago aren’t the only ones reaping the benefits, but smaller metros like Cincinnati and St. Louis. In five to eight years, he predicts, we won’t have enough people to fill that growth.
Talent is the most important resource, says RXR Realty CEO Scott Rechler. And they need workspaces that offer quality of life, a cool environment, culture, and collaboration. He points to RXR’s 2.3 million-square-foot Starrett-Lehigh Building, which has attracted creative companies like Martha Stewart Omnimedia and Tommy Hilfiger. RXR is focused on creating value in its portfolio; in Starrett-Lehigh, it has added amenities today’s tenants crave, like a doggie daycare and bicycle repair shop. “You have to step back every year to look at what’s changed,” says Rechler, whose firm is also redeveloping Pier 57 and 75 Rockefeller Plaza.
Even though cranes are everywhere, construction prices have escalated, and land costs have increased, the development market is still healthy, says The Witkoff Group CEO Steven Witkoff, who recently finished two projects and is vertical on Times Square’s 701 Seventh, a 39-story, 350,000-square-foot mixed-use property that will include a Marriott EDITION hotel.
On the lending side, there is plenty of money available for acquisitions and refinancing—if you fit the lender’s model, according to Ladder Capital CEO Brian Harris, who says there are still underserved pockets in financing due to changes in the banking industry. It is definitely a “have and have-not” market, adds Mack Real Estate Credit Strategies CIO Peter Sotoloff. There is tremendous opportunity for anything with cash flow, but there are borrowers out there without the experience or track record.
Sitt says that given low interest rates and the influx of capital, many REITs are undervalued. He predicts announcements of certain REITs going private because valuations will be higher. “There are people out there with huge amounts of money who can only satisfy their appetite by taking by taking these public companies,” he says—the Blackstones of the world “will swallow them.”
”It’s tremendously exciting to be able be able to share insights and exchange knowledge with such a venerable panel,” says Kenneth Weissenberg, Partner at EisnerAmper, who co-moderated the discussion with Michael Kosnitzky, Partner at Boies, Schiller & Flexner. “Our clients and contacts are at the forefront of the real estate industry’s resurgence, and we are always happy to bring people together to exchange ideas. We consider our knowledge of the industry and our connection with the marketplace to be essential to providing our services in today’s ever evolving marketplace”
"It was clear from participants that the commercial real estate market has changed dramatically, but the companies that can discover and unlock value in large and small markets by analyzing news and market data will rise to the top," says Russ Parentela, Global Head of Structured Products at Bloomberg. "The trend we have seen is that more of our customers in the real estate industry are coming to us because they realize we offer so much data and we can help them navigate the information they need."