This year’s Fall Board Conference at the Four Seasons Hotel kicked off with a board dinner and a keynote presentation by real estate icon Jonathan F.P. Rose, President of Jonathan Rose Companies. Over 130 board members, alumni, students, and friends of the Graaskamp Center for Real Estate were in attendance. Rose told a quick and entertaining story about the one time he met the late Professor James Graaskamp and how Graaskamp was “saved” from a boring meeting by his adoring students, who then took him to the bars in Madison.
Rose’s talk centered around creating more environmentally, socially, and economically resilient cities. He gave some historical background of ancient cities, and how these cities were both inward and outward facing, something we need to strive for today. In line with this thinking, the first cities were centered around social gatherings, such as religion or theatre. Rose discussed how cities and communities should always have an underlying plan that is used and referenced to plan and develop. The future of cities, he said, will have to be green and more reliant on integrated systems.
All attendees received a complimentary copies of Mr. Rose's book, The Well-Tempered City: What Modern Science, Ancient Civilizations and Human Nature Teach Us About the Future of Urban Life, courtesy of Ackman-Ziff. Rose said it gives readers an overview on what it takes for cities to become resilient. Rose’s company provides solutions within real estate for many 21st century challenges, including economic inequality, affordable housing, and sustainable development.
Another Successful Global Real Estate Markets Conference
The Graaskamp Center and Robert White, Founder and President of Real Capital Analytics, kicked off the conference with an analysis of global trends in real estate. Overall, despite a slight market dip, there are expanding segments and interesting trends to analyze. White said it was a “odd time in the marketplace,” with investors shifting away from high-priced central business districts and investing more in secondary cities. Capital looks for yield in new markets while remaining weary of taking on too much risk.
White noted that transaction volumes and asset prices have been slightly negative correlated when they are normally strongly positively correlated. Also, demand from Chinese investors for existing properties in China is growing and it is now possible to implement a core strategy within China. In the Americas, industrial remains strong as online retail drives supply chain change from small retail shops to warehouses. London prices have also bounced back despite a post-Brexit decrease with private investors using the opportunity to enter a major market.
Overall, White said it is tough to generalize the global market because different regions and sectors are moving inversely from each other. As a result of the differences in market movements, diversification should be encouraged to ensure the preservation of capital.
The Global Investment Market: Lots of Money, Lots of Markets
Brad Olsen, President of Atlantic Partners, led the first panel on sources and destinations of capital in real estate markets. A PWC study showed that from 2016 to 2025, of all global assets under management, $21 trillion will be in real assets. That money is also coming from unexpected places across the globe. For example, Credit Suisse raised 500 million dollars for a pan-European real estate fund raised entirely from private wealth customers in Indonesia, Malaysia, and Thailand.
Fahed Boodai, Chairman and Co-Founder of Gatehouse Capital in Kuwait of Gatehouse Bank in London, and Gatehouse Financial Group; talked about sovereign wealth funds and, specifically, the Kuwait fund. The main goal of the Kuwait fund is to preserve wealth for the future. Gatehouse acts as a bridge between the high net worth individuals from Kuwait to provide Sharia compliance and investment expertise.
Catherine Ann Marshall, President at RealAlts, was surprised to hear of the decrease in Canadian investment. She said the Canada Pension Plan Investment Board (CPPIB) invested capital outside the country to diversify property types and regions after a study showed there was less-than-expected investable real estate in Canada.
Masashi Otake, President and Chief Executive Office at Otake Global Capital LLC, discussed Japan’s Government Pension Investment Fund’s (GPIF) potential shift from avoiding real estate to slowly embracing the alternative asset class. The GPIF will be looking to deploy capital outside of Japan so their home markets do not become inflated.
Thomas Shapiro, President and Founder of GTIS Partners, discussed his experience investing in Brazil and single-family homes in the United States. While the Brazil market is difficult to work within because of issues from construction quality to currency fluctuations, GTIS is looking to acquire more assets in the country. He said the numbers show U.S. single-family homes are not oversupplied and has become an institutional asset class since the financial crisis. The big issue is the expense of managing individual homes.
Global Infrastructure: How Public-Private Partnerships and Creative Financing Solutions Can Address Infrastructure Challenges Across the Globe
The Global Infrastructure panel started by defining infrastructure as “the structure that makes other things happen.” A large amount of infrastructure within the United States is due for improvement or replacement and about 3 percent of the annual GDP is spent on infrastructure. Public-Private Partnerships (P3) projects are often expensive, complex, and have an extended delivery time. Right now, the most notable project in the US is the $5 billion redevelopment of LaGuardia Airport.
When typically looking for projects where a P3 would add value, several characteristics are evaluated. Look for states with project-friendly legislation and projects that the community supports. Another common attribute of P3 is multiple stakeholders and the risk associated with the pay structure. Moving forward, infrastructure will be a large asset class for the private sector. Creating more public-private partnerships can be beneficial to the community, and the bottom line.
Navigating Today’s Global Debt Markets
Moderated by Marc Warren, Principal at Ackman-Ziff, this panel discussed regulation, rising rates, the real estate cycle’s impact on lending, mezzanine debt, and finding value in a competitive environment.
Ken Cohen, Managing Director and Global Head of Commercial Real Estate Finance with Bank of America, said the biggest regulatory concern is the lack of liquidity on Wall Street because of Dodd-Frank rules. Risk retention has also had a large impact because lenders are less willing to issue construction loans as they anticipate the end of a cycle. The global search for yield has made mezzanine debt easy to sell. Specifically, foreign money has embraced mezzanine debt.
Greta Guggenheim, Chief Executive Officer at TPG Real Estate Finance Trust, indicated that she is generally free-market leaning but has a soft spot for the Dodd-Frank regulations that helped create the non-bank sector. There is a silver lining to rate rises because it generally means that the economy is doing better which will positively impact real estate.
Mark Hudspeth, Executive Vice President and Head of Capital Markets at Vornado, noted that rates are up, but spreads have tightened. Vornado is more focused on reinvesting in their own properties because they think they can get a better return than they would by investing in new assets.
CEO Keynote Conversation: A View from the Top
The CEO Keynote conversation focused on the single-family home market. Chris Marlin of Lennar International provided some interesting statistics about the current market position. Annual demand for single family homes is higher than annual supply and individuals between the ages of 25-32 living with their parents, siblings, or roommates is at a 115-year high. Millennials are waiting longer to buy a home and start families. The underlying takeaway is that values have dropped while prices have not. The whole panel agreed that the entire industry has to remain intellectually honest about where the market is today instead of directional investing.
The conversation then shifted to how new technologies and services are influencing the market. There are several new and innovative ways to help homebuyers. Opendoor is a service that helps people buy and sell homes simpler. There are mortgages being offered that recuse portions of student debt.
Alex Perriello, CEO of Realogy Franchise Group talked about an initiative where outside companies pitch real estate technology ideas to a committee looking for venture capital dollars. As the world continues to adapt with concepts of driverless cars and smart buildings, the home-buying process and construction will require innovation.
The Graaskamp Center staff would like to thank its conference planning committee for their time and efforts: Frederick Cooper, Senior Vice President, Finance, International Development and Investor Relations, Toll Brothers; Bradley Olsen, President, Atlantic Partners; and Marc Warren, Principal, Ackman-Ziff. We would also like to thank all of our event partners and sponsors for their generous support: Toll Brothers, Brennan Investment Group, Atlantic Partners, Ackman-Ziff, Mayer Brown, Real Capital Analytics, US Bank, Värde, Annaly, Dentons, Deloitte, Arch Street Capitol Advisors, Metzler Real Estate, Goldman Sachs, Realogy, Societe Generale, and Eastdil Secured.