DCA Live

MARKET INSIGHTS (feel free to repost) Below are some speaker notes - without attribution - from the The Tuck School of Business at Dartmouth Real Estate Conference held last week in beautiful Hanover, New Hampshire. Panelists were Tuck or Dartmouth College alums working in all corners of the commercial real estate industry, especially acquisitions, who are eminent in the industry and who have lived through multiple cycles. NOTES: The cap rate environment of the past 15 years have bailed out a lot of people. But securing a 3 cap on your exit when you modeled a 5 doesn’t make you a genius. It's like waking up on 3rd base thinking you hit a triple. Office is not a falling knife ... it’s a falling axe. People are going to lose limbs. But, don’t forget that markets overshoot. There’s a price at which it makes sense to buy office. But we'll need an extraordinary amount of pain to get there. Many of the office deals getting done right now are corporate users in old buildings looking to downsize and build product that doesn’t exist in the market. The market gets a sexy new building and politicians celebrate, meanwhile the deal represents -2M sf net absorption and the owner of the old building is left with a very distressed asset. Yes office is a dog right now but the current environment will affect all asset classes. It's basic math. If you're 70% LTV and cap rates have risen to where they are now, your equity is wiped out. Everyone is high on industrial and multifamily but they’re not immune either. Lots of patient capital on the sidelines. Hugely opportunistic time. There will be opportunities for some to create generational wealth. Debt is now providing returns that look more like equity. Isolate the best best projects in best locations. There is still a wide bid-ask spread. The chickens will come home to roost when loans begin to not perform. Forced sales. Foreclosures. Etc. Every seller wants yesterday's price, and every buyer wants tomorrow's value. There are and will be amazing opportunities to swoop in and rescue capital stacks. Mezz debt, preferred equity, creative deals, etc. Historically, recoveries have roughly the same duration as the downturn. But the primary force of this downturn is equity, so it may take longer for the system to stabilize. A reminder to heed Warren Buffett's investing advice: “Be fearful when others are greedy, and greedy when others are fearful.” Be sure to use the following link to subscribe to my newsletter for awesome real estate, design, and architectural content. http://eepurl.com/iBJBGk