Hosted by the Wisconsin Real Estate Alumni Association, the 2015 Wisconsin Real Estate Trends Conference theme, “Cycles of Opportunity in a Global Market,” was timely given the uncertainty in the industry about interest rates, the heated market, and an abundance of capital.
Held at the Aon Building in Chicago, more than 200 real estate professionals heard words of encouragement from Jerry Webman, chief economist of Oppenheimer Funds. Webman’s perspective on interest rates was positive, predicting that rates will remain very low and stable for the next one-two years. While Webman anticipated a correction in the business cycle within the next 10 years, he reassured the audience that ‘slow and steady growth’ in the U.S. economy, albeit less dynamic, is good for the overall market. He warned that “excess” whether in development or flights of capital are one’s best indicators of a potential bubble. His lasting thought, "When we are too happy we get into trouble. Currently the lack of happiness and subsequent excess in the market is a good thing."
On the development side, the attendees sat on the edge of their seats digesting the success of John Gavin’s big bet on the West Loop. Gavin, Principal of Sterling Bay, scored big when he acquired an old cold storage building in the forgotten neighborhood. Now the 1KFulton building is slated to be the future site of Google’s 357,928 SF Chicago office; with long-term plans to develop mixed-use properties in the surrounding area. Gavin wowed the crowd with his tales of thawing the former ice making building, previously leasing the top floor to another tenant and ultimately the whirlwind events that comes with landing such a high-profile tenant. Gavin’s biggest take away: "when Google comes to a neighborhood–buy up everything around it." Tech firms continue to heavily influence the evolving landscape of under-utilized neighborhoods in cities around the country. The key is being in the right place at the right time and making smart long-term bets on the market.
Capital flows were a major topic at the conference. Andrew Weir (MBA ’97) of HFF, kicked off the session by highlighting the continued increase in real estate allocations, globally, by pension funds, sovereign wealth funds and investment managers. Kevin Mulhall of Walton Street Capital argued that the key to long-term success and maintain a competitive advantage is focusing on the fundamental economic and demographic drivers and coming to terms with the ‘new normal’ - stabilized cap rate compression, and low IRRs. Tom Danilek of Hines stressed the importance of maintaining local relationships and continuing to focus on a firm’s key business model—in Hines’ case core office properties.
The day ended with an excellent presentation by Graaskamp Board Member Fred Cooper, Senior Vice President from Toll Brothers. Cooper delved into the continued success of Toll Brother urban condominium projects such as in New York City and shed light on the dynamic housing trends facing the market. He highlighted that Toll Brothers continued to see trend towards “repeat” customers who purchase urban condominiums and later suburban single family homes.
In all, the Wisconsin Real Estate trends conference painted a cohesive picture of today’s market—relatively stable economic factors, calculated development projects in urban areas, and closely monitored capital flows within the market. The sentiment among the attendees remained uncertain as the feeling of a “frothy” market and looming “correction” continued to be pervasive. However, I took comfort in Jerry Webman’s opening theme—"the world economy is growing slowly and remains relatively boring, a positive state for tempering excitement, which breeds bad things."
Click here to learn more about WREAA's 2015 Trends Conference.