CBRE conference networking

Part 1 of 2

LOS ANGELES-“I don’t think a double-dip is likely. What we have learned about Bernanke over the past year-and-a-half is that he will do anything to prop up the economy.” So said CB Richard Ellis CEO Brett White at the company’s Sixth Annual Southern California Real Estate Conference in Downtown L.A. “And whether that is a good thing or a bad thing is debatable,” he added.

In a wide-ranging discussion touching on the economy, distressed assets and a variety of other topics associated with commercial real estate, White was interviewed by Chris Ludeman, president of brokerage of the Americas for CBRE at the event on Thursday. Speaking to an audience of nearly 400 industry executives at the Jonathan Club, the CBRE chief said that in the early stages of recovery—which he said we are currently in—there will always be a rocky road. “A double dip would be three or four quarters of negative growth, not just one of two, and I don’t see that happening,” he said.

Although the consensus now is that there will not be a tidal wave of distress hitting the market, White said there is a tidal wave of desire for low risk. That, he said, is why there is such a demand for core property. “The demand for core is driven by capital.” In this case, however, White said that the greatest opportunities are not in the core. “If you are going to chase a high rise core property right now, you will be against at least 30 other buyers,” he explained. “When I am talking to clients, I am not talking about high-rise class-A property downtown. I am talking about class B properties where they can do something special with it.” He encouraged the audience to “Take advantage of that dislocation in the marketplace.”

White contrasted the approach to distress that government officials have pursued in the US versus the UK. He said that the UK markets were first to come out of the slump because the government there did not interfere with the capital markets. “They allowed property values to fall,” he said. “What that did was allow the markets to reset, and they reset quickly.” By contrast, interference in the markets in the US slowed the downturn and then slowed the recovery. “We are in what I would call a nascent state of recovery,” he explained. “Now is the right time to acquire.”

White, Ludeman

Another result of government interference in the US is that it held back distressed assets from the market, White said. “Unfortunately for those buyers and for that capital, it has been mostly sidelined,” White said. “The interference in the market really took away the distress. Quality assets that should have been foreclosed on were not.”

As a result, White said, “There are some distressed opportunities that are few and far between, but when they come about, they trade at non-distressed pricing” because so much money was raised to buy those properties. CBRE, for example, has a small distressed fund that White said “really hasn’t done a lot.”

There is going to be a really slow patient unwinding of this mortgage face-value property-value dilemma,” White said. “It is harder now to predict what the next year or two years is going to bring because the one thing we can’t predict is ‘what’s the fed going to do next?’”

White continued that for now, “You are going to have to fight to find off-market opportunities. That is the entire game right now.”

When Ludeman asked White about changes in the business, the CBRE CEO pointed out that on the structural side, there have been many changes. “Demands of our clients are increasing each and every day, which is both an opportunity and a challenge,” he said. “It has created a slow but unstoppable consolidation in our industry—the service provider industry.”

White explained that the cost of providing those services then becomes higher and higher because the client has essentially upped the ante. “It is harder and harder every day to do it on your own. We are ending up in a marketplace with a few service providers who have everything the client needs, and if we can invest in the business in a way that raises the bar on services provided to clients, we can never get locked out. It is a healthy thing.”

White ended his discussion with what he considers to be one of the single biggest threats as a services firm, and that, he said, is being held back by mediocrity. “The industry has an opportunity and has had an opportunity for a while to do something really good and really important and that is to raise the bar for what they do. We need to diversify these firms, we need to always be early for meetings, always return calls, always have a clean car when showing a property, we have to polish our shoes,” he said. “We have an opportunity to raise the professionalism in this business to a place it needs to be. Everyone in this industry should be viewed as an absolute best in class by the business. The clients are a great example for us.”

Check back in a day or so for more coverage from the CBRE event.