Experts: Bifurcation Will Continue

NEW YORK CITY-It’s a tale of two markets, a split between haves and have-nots when it comes to pricing and the availability of financing—and this will be the case for some time to come, experts said Thursday at a panel discussion presented by Bloomberg.

Core properties in a handful of markets have been both commanding investor interest and fetching top dollar in sales, panelists said. Real estate attorney Jonathan Mechanic, partner with Fried, Frank, Harris, Shriver & Jacobson LLP, would narrow the field of top-tier markets even further: New York City and Washington, DC stand apart even from the likes of Chicago, Boston and San Francisco, he told attendees at the Bloomberg Real Estate Briefing.

In the kickoff panel, titled “When and Where is the Recovery Coming?” Carlton Group chairman Howard Michaels noted that stabilized assets are where the demand is, at least among REITs and pension funds. For these core assets, financing as well as pricing are conducive, he said. But once you start getting into properties saddled with vacancies and other issues, the challenges in both areas start piling up. 

Michaels’ colleague on that panel, Cushman & Wakefield co-chairman Bruce Mosler, said such bifurcation will continue. However, Mosler said there’s optimism that although prices have reached their current levels because so few assets have been available, more product will come to market because sellers are encouraged by the kind of pricing seen lately.

One of the avenues by which product has been expected to become available is distress, and Daniel Neidich, CEO of Dune Real Estate Partners, said there will be distressed opportunities to come. The question, he said, is “whether you’re a vulture or a pigeon,” adding “whether you’ll get to scoop up opportunities or not, we’ll know in five years.” But from the vantage point of five years into the future, Neidich predicted, the kinds of opportunities coming available in the next two or three years will look like “great, vintage deals.”

In the meantime, Mechanic noted that deal flow has “improved tremendously” compared to a year ago. As evidence, Mechanic noted what’s happened to bankers’ job descriptions lately: following the 2008 capital markets crisis, they were shifted over into asset management. Now, he said, many are coming back into loan origination.