Key takeaways from DLA Piper's 14th Global Real Estate Summit
On September 26, 2017, commercial real estate leaders from around the world met in Chicago for DLA Piper's 14th Global Real Estate Summit. The Summit came at what might be described as an uneasy moment, amid rising concerns about political turmoil both domestically and abroad and the growing realization that the current growth cycle has to run out of steam – eventually.
CRE volume is also down from their high points earlier this decade, even as public equity markets soar past record highs. Against this backdrop, Summit speakers and experts delivered a wealth of insights and context on the industry, the market and the future. Here are some of the key takeaways and insights from that day in Chicago:
1. Cautious optimism – despite length of cycle
With some exceptions, the speakers at this year's Summit were at least moderately bullish about the CRE market, mirroring DLA Piper's 2017 State of the Market Survey. "All the things you'd worry about as a CEO or an investor haven't come to bear," said Alan F. Riffkin, managing director of global investment bank Lazard. "But there is an angst… that resonates with people on the board and informs how they have to think about returns over long horizons." Thomas M. Flexner, global head of Real Estate at Citigroup, said, "We're seeing slow, moderate, measured growth, and we haven't built up excesses like we did for the '08 collapse. I don't think there's a law of nature that says a cycle has to turn."
2. Hope remains for trump's pro-business agenda
Some speakers noted the lack of major legislative achievements in Washington this year, despite the GOP's control of Congress and the White House. Bill Ackman, CEO of Pershing Square Capital Management, during the opening keynote, said the Trump administration could still prove helpful for markets if it can work with Congress to pass infrastructure or tax-reform legislation. "He's fundamentally a dealmaker," Ackman said of the president. "He likes to get things done."
3. Just how bad are things in Washington?
During a panel of Washington heavyweights, former Senator and US Secretary of Defense William Cohen was asked to compare the current climate with the Watergate era. "It's much worse now," he said. Former Secretary of Commerce Penny Pritzker said, "We're all struggling to understand what is ahead for the country." Former Senate Majority Leader George Mitchell was more optimistic, saying he believes the US will "remain the world's greatest superpower for as long as any of us can foresee."
4. Foreign buyers still love the US
Overseas investors are expected to be the most active players in US CRE markets, according to DLA Piper's 2017 State of the Market Survey. That was largely affirmed by a panel of foreign investors at the Summit. "It's the depth of the market, the liquidity, the transparency," said Martin J. Brühl, managing director and chief investment officer of Union Investment Real Estate GmbH. Others noted that foreign investors tend to take the long view. "We invest beyond the term of any one or two presidents," said Peter Ballon, managing director and head of real estate investments for the Canada Pension Plan Investment Board.
5. Are Asian investors drawn to turmoil?
That was the question posed to Tinchuck A. Ng, international chair of the Real Estate Board at Cottonwood Management, during the foreign investment panel. Asian investors don't look for turmoil, Ng said, but they "are somewhat accustomed to turmoil in their own countries, and take a long-term view." Respondents to DLA Piper's 2017 State of the Market Survey expect Chinese investors to be most active in the US and South Korea investors ranked third.
6. Don't bury retail
2017 has been brutal for retail, but most speakers said it could bounce back. "I think we will get creative and there will be interesting solutions," said Deborah Ratner Salzberg, president of Forest City Washington, mirroring DLA Piper's 2017 State of the Market Survey. But retail's footprint will likely shrink. Leonard J. O'Donnell, president and CEO of the USAA Real Estate Company, recalled a saying during one panel: "Retail isn't overbuilt. It's under demolished."
7. Investors like healthcare, industrial
Healthcare was the most attractive opportunity for investors, followed by industrial, in DLA Piper's 2017 State of the Market Survey. The aging US population provides "growing, powerful and sustainable demand that will provide superior risk-adjusted returns," according to comments made before the Summit by Debra Cafaro, CEO of Ventas. Some speakers at the Summit touted industrial properties' propensity to weather economic downturns.
8. Data centers, student housing popular, too
Survey respondents also named data centers a hot spot for investment; 31 percent picked that category as the most attractive in DLA Piper's 2017 State of the Market Survey report. The growing need for data storage is not restricted to the US, with China a top market. Ballon, of the Canada Pension Plan Investment Board, said during the foreign investors' panel that his organization was focused on another sector: student housing in college towns.
9. Non-gateway cities – and urban cores – remain hot
Secondary markets are viewed as more attractive for CRE investment than gateway cities like New York, San Francisco and Chicago. Austin ranked as the top non-gateway city in DLA Piper's 2017 State of the Market Survey, followed by Seattle, Denver and Nashville. Companies are increasingly looking at relocating to urban cores "and not just in the major cities, but in Nashvilles, the Portlands, places like that. You're even seeing it in Raleigh-Durham," said K. Jay Weaver, managing principal of Walton Street Capital, during a panel of dealmakers.
10. Technology at the center of everything
With user experience – largely fueled by Millennials – top of mind, technology has arguably never been more important for CRE. Michael D. Fascitelli, co-founder and managing partner of Imperial Companies (and co-owner of the NBA's Milwaukee Bucks) talked about how sports arenas are now filled with technology, including wifi access, to ensure that attendees, specifically kids, can be online and continue activities like texting – even during games. "If they lose that, they go into meltdown mode," Fascitelli said.