Webinar: Industry Recovery Will Be Choppy

NEW YORK CITY-The recovery in commercial real estate is at hand. However, participants in the webinar "Commercial Real Estate in a Post Recession Era," sponsored by the law firm Schulte Roth & Zabel and Globest.com, related that some facets of the industry have recovered quicker than others and still some sectors will take much longer to bounce back.

Participants in the webinar were: moderators Jeffrey A. Lenobel and Gregory P. Pressman, partners with Schulte Roth & Zabel; and panelists Evan Denner, senior managing director, chief investment officer/merchant banking with Cantor Fitzgerald & Co.; Paul A. Galiano, senior managing director, co-head of acquisitions, dispositions, capital markets, JV transactions with Tishman Speyer Properties; Ronald J. Kravit, managing principal of Cerberus Real Estate Capital Management; and Anthony Westreich, president and CEO of Monday Properties.

Westreich was perhaps the most positive of the group, saying, "Real stabilization has happened this year both in the leasing area and in the acquisitions area and the transactions side of the (office) market. We are very bullish about the future. We think in 2010 you will see more stability and some growth."

Tishman Speyer's Galiano notes that the debt and equity capital markets began to explode in the last four months. "I think when you look at cap rates, value has really come back dramatically." He adds that values in supply-constrained markets were down 40% to 50% in early 2010. "I think with cap rates compressing over the last four or five months you are probably seeing values come back 20% to 30% on a number of assets and I think we are seeing that in recent trades in New York, in DC and even in a recent trade in San Francisco, we're seeing cap rates come back in the 6% range and under."

Galiano adds that the financing market has "started to recover much quicker than we had anticipated" both in terms of rates and in availability. He says that in the financing and capital market sectors, the current market mirrors conditions in 2005 and 2006. He adds that on the leasing side, while activity has increased, there is little movement upward in terms of rental rates.

Cantor Fitzgerald's Denner says that while the financing sector is improving, the combination of much fewer lenders in the market, the significant amount of refinancing that needs to be undertaken and the large amount of properties that are over-levered will put downward pressure on activity. He adds that while banks are getting back into the lending arena, most deals will be on a smaller scale.

"I think that going out on a limb here I think it is a number of years before the market truly stabilizes both from the fundamental side and from the capital market side," he predicts.

Cerberus's Kravit notes that there is a lot of leverage to get deleveraged and that while it appears the economy and the financing sector are improving, "you have to really be careful before you just jump to conclusions that the whole world is better."

He notes that while cash-flowing assets are attracting buyers and capital, financing for the fundamental commercial real estate properties, such as strip shopping centers and small office building properties, has not improved so far in 2010.