Coping with Market Uncertainty: Advice from Silverstein, Mack, and Greenburger
October 06, 2017
What are the smartest strategies for coping with an uncertain real estate market? Three industry luminaries joined EisnerAmper partner Christopher Loiacono for a lively discussion on this topic during the Global Leaders in Real Estate Summit. This event, which was co-sponsored by iGlobal Forum and EisnerAmper, took place at the Lotte New York Palace on September 27 and 28.
The panel, entitled “Masters of the Game,” consisted of Larry Silverstein, chairman of Silverstein Properties, Inc.; William Mack, chairman of the board of directors of Mack-Cali Realty Corporation; and Francis Greenburger, chairman and CEO of Time Equities Inc.
Advice was forthcoming. Forecasts were not. “It’s a unique time for predictability,” said Silverstein. “On a scale of 1 to 10, predictability is probably minus 4.” He did offer one prediction, however: “It’s reasonable to anticipate that the unanticipated is going to happen.”
Mack enumerated many factors contributing to the uncertainty, such as changing times, oversupply and “interest rates that will go up before they come down again,” combined with “a potential tax bill that could really set real estate on its ear.” Furthermore, he noted that real estate “is no longer following just a cyclical change; it is following a structural change as well.”
What is the appropriate response to such uncertainty? Mack and Silverstein advocate caution: Keep your powder dry, make sure you have liquidity, and avoid becoming overleveraged. “Sit back and watch prime assets,” suggested Silverstein. “Make them as strong as they can be.”
The cautious approach employed by Time Equities, on the other hand, eschews prime assets to some extent, although there are some in the firm’s portfolio, because these assets have experienced significant cap-rate compression.
But Greenburger also noted that some of these assets present opportunities for repositioning, to align with the current requirements of the shared economy and millennials. Silverstein and Mack support this view. Silverstein talked about the need to densify buildings and decrease the amount of square feet per person -- something he would never have anticipated 10 or 20 years ago. Today, he said, “you have to do that in order to be competitive.” And Mack pointed out that technological advances have made some real estate assets obsolete.
Cities, on the other hand, are unlikely candidates for obsolescence. Mack observed that 10 or 15 years ago, people expected the Internet to prompt movement away from cities. That hasn’t happened. He explained that young people “want to live in cities, and where young people want to be, that’s where the opportunities are.”
Silverstein, for one, enjoys being around young people – so much that he, at the age of 86, and his wife, who is “only 84,” are moving downtown from 59th and Park to a place a few blocks from the World Trade Center. In contrast to the vibrancy of downtown, his current neighborhood comprises, as he put it: “just a bunch of old fogies like me.” Another plus is that his office is downhill from his new home. “My grandson is going to show me how to use a skateboard,” he quipped.
As for the slow velocity of sales in New York, Silverstein is not overly concerned: “Developers who are strong will be fine … the New York market will be and has always been an elite place to function.” Mack has a similar perspective: “The best places will always command decent investment.”
Greenburger is less sanguine. Indeed, he expressed relief that, given the declining velocity in sales, 50 West (a Time Equities residential development in Downtown Manhattan) is 99% complete and that people have been moving in since January.
Meanwhile, Time Equities has been finding opportunities in other markets. For example, the firm recently invested in assets located in the Netherlands, where net cap rates are in the 8s. “It’s important to have a ‘wide perspective,’” Greenburger concluded.
According to Silverstein, the U.S. continues to attract foreign investors, however, because it is still perceived as a safe market. These investors, he explained, know that there is a legal system here that protects ownership. And that is why so much of the “extraordinary amounts of wealth looking for a home” comes to America.
Mack also noted the “tremendous amount of capital today,” but he also expressed fears that capital coming into the country for real estate development and lending will diminish. Nevertheless, he sees great potential in the market, a view that became clear when he talked about the prospects for young people entering the real estate industry. “I think this business has made tremendous changes and tremendous strides,” he said, praising the levels of information exchange and professionalism in the industry today.
“We’re just on the precipice of how this industry will function going forward,” Mack continued. “If we stay sane in this world and don’t blow ourselves up, we’re going to have enormous opportunities not only for young professionals, but also for the entire country.”
One thing is clear: Whatever trajectory the market takes, it’s unlikely to be dull. As Silverstein observed: “The next year or two will be absolutely fascinating.”