Ackman Affirms Bullish Outlook on US Real Estate
Bill Ackman likes what he sees in the US real estate market. Given the favorable interest-rate environment, economic fundamentals, demographics and potential for inflation, the hedge-fund titan is bullish on real estate.
"I see low interest rates, relatively low inflation, a well-capitalized financial system," he said on September 26, 2017, at the DLA Piper Global Real Estate Summit in Chicago. "Real estate is one of the best places to invest capital."
Ackman made his remarks during an interview with Eastdil Secured CEO Roy March that marked the opening of DLA Piper's Summit. And while their conversation covered a broad range of economic, geopolitical and investing topics, the audience of commercial real estate executives was likely most encouraged to hear Ackman's bullish take on the property market.
That optimism tracks with DLA Piper's 2017 State of the Market Survey, released earlier in the day. It revealed that 60 percent of real estate executives remain optimistic about CRE. That optimism is fueled primarily by abundant capital and a strong US economy.
Ackman didn't seem as concerned about political uncertainty as survey respondents, which was the primary reason for pessimism among those survey respondents who are bearish. Ackman believes that, despite some early setbacks, the Trump administration could prove helpful for markets if it can work with Congress to pass infrastructure or tax-reform legislation. Ackman is hopeful about such legislation, in part because the Oval Office is now occupied by a former real-estate executive.
"He's fundamentally a dealmaker," Ackman said. "He likes to get things done."
Big Bets Both Private and Public
Ackman's confidence in the real estate sector is reflected in the bets he's making, both in his private investments and in the portfolio he manages at his hedge fund, Pershing Square Capital Management. Pershing Square holds a position in Howard Hughes Corp., the development company spun out of General Growth Properties as GGP emerged from bankruptcy in 2010.
Ackman said he saw the potential in HHC while it was still buried in GGP's portfolio of income-producing malls. Today it owns 50 million square feet of property with development potential, mostly in attractive communities such as The Woodlands in Houston, South Street Seaport in Manhattan and Columbia, Maryland. Developing those into carefully planned communities creates enormous potential, Ackman believes.
"These are iconic assets," he said.
On the other end of the property spectrum, Ackman said the private investment portfolio run by his father, Lawrence, the founder of commercial brokerage Ackman-Ziff Real Estate Group, focuses on under-the-radar properties. For instance, they recently partnered with a pair of Philadelphia developers to purchase a rundown apartment building in that city's Germantown neighborhood, then helped arrange the financing for a wholesale rehabilitation.
Through Pershing Square, Ackman also owns significant stakes in both Fannie Mae and Freddie Mac, the federally backed housing lenders. And while those stocks have underperformed since the government took them over in the financial crisis, Ackman continues to believe they'll be returned to shareholder control.
"The problem is right now the taxpayer owns the first-loss capital," he said. "The private sector is willing to take that risk instead, and we have a Treasury Secretary who understands that."
Retail: A Place to Gather?
Casting an eye on retail, Ackman sees a future in experiential and entertainment for shopping malls and other former retail properties. But getting there likely requires significant repositioning for legacy merchants.
"Communities still need a place to gather," Ackman said. "But it's very difficult to revive a failing retailer. You probably need to start with a blank sheet of paper."