CENTURY CITY, CA-From brokers on the street to management in the executive suites, commercial real estate professionals foresee increasingly strong demand for space in virtually all classes of investment real estate in Southern California, and industry icon Sam Zell expects a continuing strong flow of capital into commercial real estate for at least five years. But interest rates remain a bugaboo, the condo market shows some strain and rising construction costs worry lenders and developers.

These were just some of the high points of the day-long ‘Real Estate 2006′ conference at the Hyatt Regency Century Plaza on Monday. Brokers, lenders, developers and investors speaking at panels throughout the day tackled a host of issues and fielded questions from an audience of 1,200 at the gathering.

The annual conference and networking event is part of the RealShare Conference Series produced by New York City-based Real Estate Media, publisher of GlobeSt.com, Real Estate Southern California magazine and Real Estate Forum. The event features panel discussions and individual speakers from every realm of the commercial real estate world.

Pointing out that Southern California has relatively little land available for new developments anywhere except in outlying areas, a number of speakers made the point that the combination of this lack of new construction–along with population growth and the rising demand for space in commercial buildings of all kinds–is bound to eventually push rents higher for all product types. Another prospect the speakers broached is that if prices for investment properties have been climbing even in the face of rents that have been rising only slightly for several years now, prices will climb even further if growing demand for space pushes rents higher.

Observations on the condominium market suggested that the frenzy is slowing and that problems await in some markets because of oversupply amid speculative investing, but other markets remain sound and strong. In the construction realm, lenders and developers for all product types are focusing on how to ensure returns on their investments in the light of building materials costs that are escalating as never before.

The meeting kicked off with opening remarks by Jonathan Schein, president and CEO of Real Estate Media, and by Marty Stolzoff, founder of the Real Estate Conference Group, who introduced a panel of brokerage executives that was moderated by Pamela Westhoff, a partner at the law firm of DLA Piper Rudnick Gray Cary. Panelist Neil Resnick, EVP and managing director at Grubb & Ellis, cited three recent office leases ranging from 50,000 sf to 250,000 sf in Westside markets as indicators that the post-dot.com sluggishness in the Westside office markets is long gone and that demand for office space is growing both there and elsewhere in the region.

“All three of these deals were for new uses, not just relocations of existing uses. This is real growth,” Resnick observed. Others echoed the sentiment, with executive managing director Lew Horne of CB Richard Ellis commenting, “The occupier is back.” Horne added that with occupiers pushing demand for office, industrial and retail space, and with a population that continues to grow, two of Southern California’s biggest challenges are how to transport people to their jobs and how to provide reasonably priced housing.

The brokerage panel was followed by Zell, chairman of Equity Investments Group, who did double duty as keynote speaker and as presenter of the Lifetime Achievement Award to Dick Ziman, chairman and CEO of Arden Realty Inc. Zell was introduced by Michael Desiato, group managing director and editor-in-chief of Real Estate Media, who outlined the Equity Group leader’s 40-year career in the real estate industry.

Zell spoke on the theme of monetization, explaining that the flood of capital that has washed over the real estate landscape in recent years is tied to “the greatest monetization of assets in history.” Furthermore, Zell stated, the tide of capital created by this monetization is “an enormous oversupply” so huge that it will continue for at least five to seven years before conditions return to equilibrium.

In addition to his spoken remarks, Zell made his point about monetization via a video he showed to the audience that featured a song with the refrain “Capital keeps raining on my head,” that played to the tune of the popular hit “Raindrops Keep Falling on My Head.” It was the same video that Zell sent at the end of last year as a message to friends and business acquaintances to offer them his view of current and future market conditions.

In his speech, Zell touched on the recurring topic of “bubbles” in real estate, expressing exasperation that those who are unfamiliar with the industry mistakenly believe that rising prices in real estate correspond to rising prices that have caused notorious bubbles in other investments. He cited the tulip craze of the 1600s and the dot.com bubble of the late 1990s as two examples, explaining that fads and frenzies like the tulip craze and the flowering of outlandish Internet schemes have something in common that is not true of real estate: “They could go to zero because they had no intrinsic value.”

Zell also commented on the continuing undervaluation of publicly held real estate companies, which has prompted private buyers to take a number of REITs private at prices substantially higher than the public market valuations of the REITs. “As long as public markets continue to undervalue real estate, we will see public-to-private transactions,” Zell declared.

Among the public REITs that have been taken private is Arden, which went public in 1996. Ziman, in accepting the Lifetime Achievement Award, praised the management and staff at Arden as the reasons for the company’s success, saying, “Awards come to you when you are surrounded by terrific, successful people.”

In addition to Zell’s presentation and the panels, the conference included an economic update by chairman Stan Ross of the USC Lusk Center for Real Estate, panels on finance, development, mixed-use projects and tenant-in-common investing. This year’s conference featured its first-ever session on recruiting in the commercial real estate industry, a panel discussion titled “Human Capital: Attracting and Retaining Talent.”

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