Find a need and fill it. That’s what Robert White believes and, as president of New York City-based Real Capital, that’s what he says he’s done. White states that while the commercial real estate market has no dearth of leasing market reports or data on CMBS or REIT activity, there was precious little available that tracked the $150-billion-per year equity markets and investment plays on a national basis. Enter Real Capital, which he formed just about a year ago, leaving his research post at Granite Partners. White’s operation gained a bit more momentum last month when Real Capital joined the ranks of’s market providers (Please click on MarketData) supplying a running tally of investment deals and values on both a national and regional basis. There are stories behind those numbers however, and White was on hand recently (the first week of November) to give the play-by-play. Give us a national overview on the state of the investment market.

White: It seems to be changing almost daily. In the past week, it seems that maybe we bottomed out. Look at the stock market and the strong retail sales and the victories in Kabul. Today, people are more optimistic than they’ve been since Sept.11. But isn’t talk about bottoming out a little premature?

White: No. There is hope. Sept. 11 may have accelerated a shakeout in the economy, clearing the way for recovery a bit sooner. That said, there are certain markets that appear relatively unaffected, such as the apartment market. We’ll get into the specific markets in a bit, but is your optimism straight across the board?

White: Pretty much. Certainly, the office sector was hardest hit, and it was already teetering because of the weak economy. Sept. 11 made us realize that we were indeed in a recession. Then in October, all of these market reports came out telling of increasing occupancy rates and lower rental rates and more sublease space on the market. So all of this bad news came in all at one time, but now, hopefully, people have absorbed all of that and are starting to feel that there may be light at the end of the tunnel. Take us through each of the markets and explain why exactly they should feel that way. Let’s look at the apartment sector.

White: That market appears to be relatively unaffected. We compared investment activity in the weeks leading up to Sept. 11 with data through the end of October, and investment activity actually increased after Sept. 11. For the past three months, volume was about 30% greater than it was last year. In fact, throughout the year, it’s been ranked as the favored investment class of any. What’s also interesting is that there are more buyers now than a year ago. Why?

White: The market consists mostly of private, local buyers. You see a lot of high-net-worth individuals who are diversifying away from technology and the stock market and into real estate. The yields are very attractive, since, on average, you can still get a double-digit return as well as tax and diversification benefits–as well as a 1031 if you want to sell. Your first report for also says that retail is getting strong, which was odd, given that in the strongest part of the cycle retail was weak. What’s the dynamic there?

White: Investors are starting to turn their attention to retail, and the good news is that since the sector as a whole never got bid up, prices were never out of line. Also, recent sales statistics show that necessities–food, shelter, clothing–do well in an uncertain economy. While not all retail sectors have gained, power centers have experienced big increases.

People forget that a year and half ago the Internet was going to take over, and malls would be no more. Very high-quality malls will always serve a niche, and there have been significant investments either in the well-performing assets or in malls that have failed and are going to be repositioned. Will malls continue to make gains through 2002?

White: Yes. The dynamic I described has actually been in place for a couple of years. The high-quality malls are going to REITs, usually with joint venture investors. If the optimism you expressed is straight across the board, where is the glimmer of hope in the office sector?

White: The optimism is there–this week. Certainly, the numbers that came in though October were very disappointing. There are more deals that were under contract and reported busted. If you pool that with the value of the deals that were pulled off the market because they failed to find buyers, that exceeded the number of properties that sold in October. Activity was down across the board. There were only 11 CBD properties sold and only five in major markets and none were significant assets. One or two have moved since then. So that’s a good sign. But the real good news in the office sector is that the lenders have been somewhat active. There is a lot of capital looking for opportunities. But aren’t those opportunities overpriced?

White: Well, there is certainly a disconnect between seller expectation and where the market is right now, but that is starting to narrow slightly. The gap was certainly greater in the first quarter and started to get smaller prior to Sept. 11, when sellers were finally adjusting to new pricing levels. Then the floor dropped again. The last of the sectors you cover is flex/industrial, which seems to have withstood the wavering of the 2001 market. Agreed?

White: We have to separate those out. The flex market performs more akin to office and it has taken its hits. But warehouses and distribution facilities are still very strong. Industrial is the only market where the institutions dominate right now. So that tells you something. Let’s get back to where we started. What is the outlook overall? How long do we wait and see about the wait-and-see?

White: I’m convinced the turnaround will be sooner rather than later. I was surprised that the debt markets did not stall for very long. Look at 1998, when CMBS came to a standstill it affected debt markets for three or four months. Today, lenders are still making loans. There have been some very successful issues since Sept. 11, and that gives lenders confidence that there is a secondary market for their mortgages.

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