What do your future investments look like?
EisnerAmper Partner Lisa Knee asks the panel what their investors are looking for, the tools their investors are using to evaluate the market, the balance of supply and demand in real estate, and how they are planning for the “second half” of the real estate cycle.
Lisa Knee: What are you doing now to poise yourself for the future, and current investments that you have and future investments that you're going to make with everything looming on what's going on in today's environment?
Samantha Davidson: Well I think it's a couple of things to think about and it really is a question of kind of what's your outlook on the market. And what's interesting is, while I think in some ways you could maybe get to a consensus after we spend a day in the room, if you spend individual time with investors the way we do, you really see that there are only a handful that are, what I would say particularly pessimistic. There's a large group that's relatively cautious and then I would say a group that is what I almost would put in the moderately optimistic category. And really that ends up being a function of where you're playing and really the true competition that you are facing in your market. But in terms of tools, I think we are seeing and actually relying on investors to start using tools, particularly in the portfolio construction side.
Hugh Macdonnell: So we're not first half of the cycle anymore, I think we're clearly second half. So start there. We manage portfolios and a couple different formats and I'd say we are doing all the things in the ordinary course that you'd expect to do in the second half of the real estate cycle. So we are de-levering where we can. We've done significant pruning, especially in ‘14 and ‘15, of perfectly great assets but assets that we as a long term holder - lots of our strategies are sort of long-term in core - as a long term holder things that we don't want to hold through the next cycle because we think there'll be marked down disproportionately. So industrial space, 20 year old infill buildings that are great buildings but maybe we think they're going to perform less well, notwithstanding what David said, which I agree with. So that would be an example of things that we're doing right now just to be defensive and thoughtful. And what brings every real estate cycle to an end is a supply demand imbalance. And we fundamentally think that the demand drivers in the US, relative to other countries in the world, the demand drivers in the US are strong. We think they will continue to underlie moderate growth, slowest growth coming out of any recession, slow, moderate growth, [we] foresee that continuing. That could taper off and lead to a pause. But the growth is actually pretty good and pretty steady in the US, and supply again, coming out of the mid-2000’s, supply is more moderate than it's been at any other time in any other sort of real estate cycle that's been studied. So supply’s moderate. There are pockets, there always are. Go to Miami: cranes, buildings, tons of supply coming. There’s supply in residential in New York City, there’s supply in San Francisco. There's pockets where there's lots of supply. But on balance across the country, across the regions, across the sectors, the supply outlook is great. It's been very moderate. Supply in industrial ticking up a little bit, supply in apartments ticking up a little bit, but that's all good. Supply in retail: nothing. And that's consistent with the themes that David just alluded to. Products or goods or services are moving through industrial buildings and not through retail, so retail: supply down, industrial: supply up.
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