Various Notes I took from some recent Commercial Real Estate Industry Discussions:

October 12, 2009 


Steve Roth 10/5/09 on CNBC 


“Slow motion recovery, that will take longer than anyone is anticipating.”


“Seeking a bottom, and this can go on for two years or longer.”   


“CRE has re-priced, rents have gone down 40%.”


“When tenants want to go long term, that is sign of bottoming process.  We are in that process now.”   


 “Last cycle, peak to peak, lasted 18 years. 


Bill Rudin CEO Rudin Management 10/5/09



“Prices have been dropped dramatically.” 


October 1, 2009 


Ric Clark - CEO Brookfield Properties

"Generally, in the major markets, what we are seeing is a lot of optimism, whether or not it is a premature is hard to tell, but definitely I think people are feeling that the worst is behind us. We have avoided Armageddon and transactions are starting to get done again, bid asset spreads between what landlords are willing to take and tenants are willing to pay have been covered and the logjam seems to be opening up."

"On the lending side, we are starting to get proposals from financial institutions to loan money to us again, so that is all positive."

"I think the point I made before is that I think the market has bottomed and things are starting to pick up."

"I can tell you that we have recently talked to Citi, BofA, Nomura, Barclays, Royal Bank of Canada and Goldman and they are all hiring again. Now that doesn't necessarily translate into space absorption because I think many of them laid people off and didn't dump their space. So they still have space, but it is sort of a positive sign and in our view, we may well see -- certainly we will see a slowing of the job losses and at some point and hopefully in the next couple of quarters, we will start to see it turn the corner."

"Rental rates are probably half of what they were certainly in New York City two years ago, but we are starting to see a tightening. We are seeing rental rates actually go up, seeing concessions firm up just a little bit and our expectation in New York is that things will improve. The rest of the country -- Washington has been pretty steady for us, probably 20% pressure on gross rent in our other markets -- Denver, Minneapolis, Los Angeles and Houston I would say."

Marc Holliday -  CEO SL Green Realty Corp.

"I think as we sit here today, we are starting to see a reversal of some of those items. Pricing has definitely stabilized and even tightened. So I think asset pricing is probably leading the New York real estate market at this point. And I would guess it is probably 6 to 12 to 18 months ahead of actual demand, but clearly investors are starting to believe and see and bet with their dollars that they will experience a bottoming and a strengthening of rental demand in the city."

"In the past, I would say, 75 to 90 days, we have closed four separate individual loan transactions for in excess of $650 million, all unsecured, conventional mortgage bases, which I think is a good sign for liquidity and I think it shows that liquidity will follow the better markets, better sponsors and I don't think that is certainly not available in most markets within the US. And I would hazard to say maybe a little more globally, but not in the US markets yet."

"I'm going to call the bottom." Marc Holliday 9/16/09

"In terms of my outlook, as bearish as we've been over the last two, 2.5 years, I'm starting to get to a point where we see some stability and future growth."

"From really low to peak in just a three-year period. Now, I'm not suggesting that's going to happen now because there's more vacancy now. There's close to 9% or so direct. There's a little over 3% sublet, so there's a big inventory that's got to get whittled away and so far we haven't had any real positive net absorption so well tenants sort of moving around but it's not increasing either. I think, like I said, it sort of hit that hopefully frictional level of around 12% vacancy. Maybe a little more will come but I know that people were concerned about 15%, 18% vacancy rates in Midtown just six months ago and we said on our calls back then we thought that was over stated."

Chris Grigg - The British Land Company PLC - Chief Executive

"I guess if one looks at the UK and pros and cons at the current time, the things that are uppermost in our mind is, first of all, that even compared with most other markets, we've seen a particularly steep fall in valuation of the underlying real estate. And that has been right across high quality and obviously poorer quality as well. So we start from a market that has corrected by, depending on the asset, 40%, 50%."

Steve Roth - Vornado Realty Trust - Chairman of the Board

"What I think is, is that rents drive the market and alternate returns in the investment marketplace drive values. So if you go back to the last cycle, what happened basically is there was a total withdrawal of finance for the real estate market. You couldn't get a loan for anything. Sound familiar -- in the early '90s, and that lasted for, I don't know, five, seven, six years, something like that.  So that resulted in two things. Number one, a shortage of property, which drove rents. Number two is the guys with capital were able to steal stuff, okay, you [two]. So, basically, I think that the debt markets follow fundamentals and follow values. So capital flows into markets when assets are cheap as opposed to capital flows into markets when assets are in a bubble."

"There's much more capital this cycle than there was in the '90s. In the '90s there was nothing and real estate was the poster child. Now in this cycle, it's almost every industry, every sector is in distress. But there's much more capital on the sidelines in this market, which troubles me because I'm not 100% sure -- I think that will inhibit the ability to steal stuff over the next period of years. But in any event, although there's going to be plenty of stealing going on.

But so what I'm saying is in the last market, there was no CMBS market. It hadn't been invented yet in the '90s. So, basically, my thesis is that the collapse causes a total cessation of new supply and development, which causes, over a period of time, as absorption comes, supply gets used up; rents go up; and then the fun begins."

"I think one of the differences between the '90s cycle and this cycle was that the government, and remember this was the Savings and Loan stuff. Remember the Savings and Loan?"

"The government seized all of their banks to run the RTC, and basically I want to say puked out the property, but I don't think I should say that in a public forum."

"The opportunities are going to happen all over the place. Be patient. We're just in -- the first data hasn't even come out of the dugout yet, so be patient. But everything Richard says is correct except when the vacancies are rising and the rents are falling, that's the time to be buying. If you wait till the turnaround, it's almost too late."

"Most of the banks have book values which are much higher than their stock prices. So what I'm saying is the market has already marked to market the loans which the bankers haven't marked yet. And with respect to government policy, I think that they were in a survival mode up until about a week ago, maybe even today. So they are kicking the can down the road. If they want to get a recovery and they do, they are going to have to clean out the loans; okay? That's coming. That is in front of us; it has to happen, and it will happen or else we're going to be like the Japan model. So all this stuff is going to happen.

And yes, I would agree there's almost nothing good for sale today. The biggest problem that I believe is in the acquisitions market or the buying of the stressed market is the CMBS. Because what happens is, is that if you go back to the '90s, the money was made in the first four, five, or six years by buying loans at an enormous discount, looking for the fulcrum piece and then basically the lender who bought the loan at $0.20, $0.30, $0.40, $0.50 owned the asset, and foreclosed out the other lenders
and the owners.

So right now, all of these loans are bundled in 50, 100, 200 loan securitizations. And if you want to buy a loan that represents that picture, you can't do it because it's bundled up. So unbundling all of these assets is really the next step, and that's where the fun will be. But patient. It's all going to happen."

"We all have enormous pools of capital and there's hundreds like us looking for opportunity, and the opportunities have not yet surfaced. So go back to my thesis. My thesis is that the fundamentals drive and the availability of assets drive capital. There's plenty of capital."

"The second thing is that the stock market also has a long memory, and it recognizes that if they provide capital to these blue-chip, somebody coined that name, blue-chip public companies, that have management teams and acquisition records, etc., there's opportunities out there. So that's one.

Now the second thing is, and the thing that's been the most astonishing in this cycle, I mean really astonishing, once-in-a-lifetime is the rally in credit. And what has happened basically is I think that the credit markets are saying that there is a shortage of yield, there's a shortage of credit, and the markets -- and there's an enormous amount of cash. And so the rally is like nothing I've ever seen; the speed of it, the velocity of it; and it's an enormous new.

So what happens is, if you are a -- if you had a bond rating and credit, you could sell a substantial amount of bonds. You choose not to be in that market. We choose to be in that market because we think it gives us a competitive advantage. So the single most important thing in this cycle has been the rally in credit by far.

I believe that that is a foreteller to a decline in cap rates. So it's very hard to have tripled the yield, selling at 5% and have cap rates at 10%. That's never had that happen in history. So the disconnect that we had two years ago is now a flip-flop disconnect on the other side."

"There's nothing to buy out there so you have to be patient."

"Cap rates are unsustainable at 10%. They're going to come down. Why do you buy them at 10%? Because you think they're going to go to 9%, 8%, 7%, 6%, okay? So what I'm saying is the debt markets are foretelling that real estate cap rates are going to come down over the cycle."

"Even more important than cap rates in a market where rents are still declining and rents are fuzzy, is price [per pound]. So, where an office building on Park Avenue sold for $1000 a foot or $1500 a foot two years ago, what would you pay for an office building on Park Avenue today without regard to what the rents are today because the rents today are going to change tomorrow, okay? So that's the single most important thing in the calculation, I think."

"I was 800 math, zero English, so I need some help on words. But, the point of it is, is that deflation is so insidious because it stops everybody from investing, buying, doing anything. So I'm not -- we are at the fulcrum of that right now."