Thank you for sharing!

Your article was successfully shared with the contacts you provided.

WASHINGTON, DC-Within the space of a few months the near-term outlook for the real estate industry has shifted somewhat in the midst of rising interest rates, widening spreads, the fallout from subprime underwriting and volatility in the CMBS market. Longstanding industry panelists on a roundtable held here yesterday at the Fairmont Hotel, though, are sanguine about the changes, noting that fundamentals remain strong and the capital markets are still liquid.

The event was the Transwestern/Real Estate Forum Eleventh Institutional Investor Symposium. Real Estate Forum is published by Real Estate Media, which also publishes GlobeSt.com.

Participants on the panel included Randy Mundt of Principal Real Estate Investors, Joseph Bonner of Prudential, Trevor Michael of TIAA-CREF, Steve Wallace of Cornerstone Advisors, Robert Merck of MetLife and Tom Zale of Northwestern Mutual. The session was moderated by Michael Desiato, group publisher and editorial director of Real Estate Media, and Transwestern investment services executive managing director Steve Pumper.

The afternoon’s conversation will be featured as the cover story for the August issue of Real Estate Forum.

Panelists Bonner and Wallace both noted that the real estate industry is a cyclical one–and the current phase has been very good for a longer stretch than previously imagined. Still, most agreed with Merck’s comment that, despite the length of the current cycle, the industry’s fundamentals remain strong. In fact, he added, that the capital markets had gotten a touch over exuberant and it is good to see some pull back by underwriters and the rating agencies.

Pricing and interest rates, though, have clearly been in change mode over the last few months. Wallace said the REIT markets have seen adjustments, for instance, and no one expects to see cap rates rise to 9% to 10% again. Still, Wallace insisted, “it’s too early to call it a game. Right now at this stage I think you can convince yourself that [the market] is whatever you want it to be.”

In this environment, firms are plowing ahead with already established investment strategies. Development is a growing interest among many of the firms, which see it adding greater relative value to a portfolio compared to acquisition. “We are at a point in the real estate cycle where we want to develop some land we have banked,” Michael said. Green building, as well, is a strategy of increasing importance, most agreed, despite the higher initial development costs. Zale, for instance, reported that the additional costs to develop a LEED certified multifamily property in Battery Park was some 15%, “which is quite meaningful.” Still, though, he added, the rent premium and other cost efficiencies will likely make up the difference.

There is also the competitive differentiator factor to consider, Mundt said. “In the long run, buildings that are not green will be at a disadvantage.” Principal is embracing the standards for a variety of reasons that range from good citizenship to long-term planning. “We want to have the widest possible universe of tenants.”

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?


Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.