Market May Be Slow, But Tech, City Centers Remain Hot, Dealmakers Say
With the stated agreement that they would avoid talking politics, a group of top dealmakers gathered at DLA Piper's 2017 Global Real Estate Summit to discuss how to find successful deals for their stakeholders amid a volatile environment.
The session, chaired by Bruce R. Cohen, CEO of Wrightwood Financial, and titled "Making Deals Amid Uncertainty," featured the following panelists:
- Timothy H. Callahan, CEO of Callahan Capital Properties
- Pamela J. Herbst, managing director and head of Direct Investments for AEW Capital Management
- Reid K. Liffmann, managing director of Angelo, Gordon & Co.
- K. Jay Weaver, managing principal of Walton Street Capital
Cohen directed the panel in a Q&A format, soliciting input from audience members on key topics.
Is transaction volume down?
Herbst: The summer was very slow and it just feels like a very uncertain time. But realistically, we've been going through our numbers and we'll do about the same by year end as we've done the last two years. That's also true on the sales side. We've got money to do core, we've got money to do value-added, we have money to do senior housing. We have a lot of things we can do, so the composition of the total transaction volume is very dependent on the opportunity.
Liffman: It's clearly down on most markets and product types, industrial being the exception. We're relatively busy in our opportunistic business and less so, but still active, in core-plus. Certain core managers are reaching a little bit further up the value-add spectrum. I think that's making core-plus a little more competitive.
Is there a disconnect on prices between buyers and sellers?
Weaver: Sellers don't really have a gun to their heads to sell. There are a lot of managers still hoping for 2015 pricing and, because of that, those hung transactions remain hung. If you wanted to sell and you're looking for 2015 prices in 2017, you're probably wrong in the eyes of the buyer. I don't see prices bouncing back to 2015 in the near future.
Callahan: You have to go through the markets to the sub-markets to the property. That all has bearing on how many people are interested in buying and selling. You can have a market like Seattle, which is as strong as any market in the country, and they're building a fair amount of space − but the demand is higher than the space being delivered. People look at that differently than they will some other markets like Washington, which seems to be building a lot of product, and we still haven't found the momentum that that market used to have.
How important is the technology sector for CRE?
Callahan: Tech has sort of saved us in this cycle for the office sector. In New York, tech was at a much lesser number, say 15 percent five years ago, and it's now 30 percent of the market; you could make the argument that it's higher than 30 percent. Finance was 50 percent, it's now down to 20. That's evolving through every market.
Will the popularity of urban cores continue?
Herbst: We believe over the next 3-5 years we'll see movement of companies to what I'll call more of an edge city than a suburban location. Some place that's 12-16 miles out that has great schools and good transportation systems, good housing. We've started to move with some companies out to those edge city locations; out of Seattle we went to Bellevue, Washington.
Weaver: Companies continue to move back into the urban cores, and not just in the major cities, but in the markets like the Nashvilles, the Portlands, places like that. You're even seeing it in markets like Raleigh-Durham, where tenants are starting to come back to the urban core. The trick for the opportunity funds is finding those markets and operators and opportunities where the tenants want to be.