Lew Feldman talks capital markets and real estate opportunities at the Milken Institute Global Conference.

LOS ANGELES—At the annual Milken Institute Global Conference last week, Lew Feldman, partner and Los Angeles chair of Goodwin Procter, led a group of industry experts through a discussion of the world’s most ripe investment markets. The experts on Feldman’s panel, Where in the World Are Real Estate Opportunities, included William Kahane, CEO of RCS Capital; William McMorrow, chairman and CEO of Kennedy Wilson; Jonathan Pollack, global head of commercial real estate and head of risk for structured finance at Deutsche Bank; Henry Silverman, global head of real estate and infrastructure at Guggenheim Partners; and Sam Zell, chairman, Equity Group Investments.

To kick off the discussion, Feldman showed the ranking markets in the world. New York City topped the list with $47.2 billion in commercial real estate volume, followed by London and Tokyo, which have $44 billion and $31.8 billion in commercial real estate volume. Los Angeles ranks fourth on the list, showing a commercial real estate volume of $27.4 billion, followed by several other US gateway cities, including Washington D.C., San Francisco and Chicago.

In terms of global investment opportunities, many of the experts on the panel were looking at emerging markets, which, overall, have a projected GDP growth of 4.9% in 2014 and 5.4% in 2015. Comparatively, the US GDP growth predictions were 2.8% in 2014 and 3.0% in 2015, while Europe, which is coming out of a recession, shows an estimated GDP growth of 1.2% in 2014 and 1.5% in 2015. The top emerging market for real estate opportunities, according to Zell, is Colombia. “Colombia is dramatically benefitting from the free trade agreement with the U.S. We’re also significantly impacted by the change in the capital markets in Colombia,” he said on the panel. Focusing on Latin America, Zell also noted that Brazil is a market his company is looking at due to shrinking growth, limited capital and low competition.

Other panelists, including Pollack and McMorrow, were impressed by opportunities in Spain, which is attracting US private equity funds and financial institutions. “The government is going through kind of a forced liquidation of assets in their banking sector, so that creates interesting investment opportunities,” said Pollack. “They have also instituted some really interesting reforms that should set Spain up to be an outperformer in terms of growth in the Euro region over the next few years. I think those two things combined make it a really interesting place to spend time.” According to McMorrow, Kennedy Wilson is focusing on several European markets, highlighting Dublin as another focus. He explains that 80% of the company’s capital is being invested in European markets.

Feldman also turned the conversation to discuss the impact of interest rates, which most investors believe will rise; however, according to Pollack, interest rates are really a driver for returns. “We’ll see this trend continue where we are seeing interest rates as the driver for returns, and I think that this low interest rate environment is not only helping drive returns but it is helping lower return expectations, which is driving up real estate value,” he said. The market, particularly in the US, is also flooded with capital, which has the potential for a dangerous situation; however, Pollack said there isn’t the same leverage in play as in 2007. 

While multifamily has been the most active real estate investment market, Feldman wondered if the sector was beginning to taper. McMorrow took the question, explaining that Kennedy Wilson is continuing to find great opportunities in the sector, particularly on the West Coast (the company recently spent $167 million on three West Coast properties) and in European markets, like Dublin, where rent growth is continuing to climb. He adds that average interest rates for the past 10 years have been 6%, and Kennedy Wilson thinks that is a good number. However, while the company is actively buying multifamily in markets throughout the country, he reminded that it also constantly prunes its asset base.

Zell, on the other hand, was quick to note the importance of demographics in the multifamily industry, talking about a shift from homeownership to renters. In the future, he believes multifamily will be much more prevalent than single-family housing, and much more urban as demographics shift toward cities.