TOO MUCH OPTIMISM

Mickson agrees the market is way ahead of itself.

 

Real estate investment trust executives at last week’s New York University REIT symposium say they are concerned about the impact that looming debt maturities will have on the sector. David Simon, ceo of Simon Property Group, kicked off the event with a warning that seemed to be at odds with the generally optimistic view of many of the attendees. “I think there is distress out there and it’s fast approaching,” Simon said. “There is $3.5 trillion of debt to deal with. I’m hearing too much bullishness out there, and I’m still cautious.”

Simon’s view was later echoed by none other than William Mack, founder and chairman of AREA Property Partners, and Sam Zell, chairman of Equity Group Investments—the generally acknowledged guru of the industry. The always quotable Zell said, “I think the sentiment is dramatically better than the reality. I think there is still a missing element on the demand side. This is a demand recession.”

Zell wasn’t entirely pessimistic, though, and acknowledged that development has been stalled. “Nothing of any consequence has been built since July 2007. Giving that, we should see significant occupancy increase over the next 12 months, but not at the prices we think,” he said. “The real challenge is to balance out existing supply and what offices are rented out at, which will be lower than expected.”

Across the board, REITs say they are well-positioned to take advantage of distressed opportunities. “The day of reckoning is coming. We see this as an opportunity to look at terrific operators who might have got over leveraged,” says Stuart Koenig, global cfo and chief administrative officer of AREA Property Partners. “If we can provide equity in that capital stack, it’s a great way to get control,” he added. William Hankowsky, chairman, president and ceo of Liberty Property Trust, agreed. “We’re extremely interested in investing and will, if it makes sense. But we’re happy to wait it out on the sidelines until we have the pricing we like,” he added.

For his own part, Mack had a piece of advice for the audience that he said would resonate with the future MBAs who were there. “Be like Rip Van Winkle: go to sleep for three years and when you wake up, it will all be ok!” he advised.

by Joanna Randell