A Sense of Responsibility

By its very nature, commercial real estate is an opportunistic business. So it is really not surprising that a growing number of U.S. investors are forming funds, positioning themselves so that as soon as they perceive a bottom to the market, they can buy. And the funds are sizable: At press time, for instance, Rockwood Capital L.L.C. had just closed an investment fund at $964 million.Nor are Americans alone or the deals to consider only domestic. “Everywhere you look, there are opportunities for investors,” observed Louis Armstrong, CEO of The Royal Institution of Chartered Surveyors, better known as RICS, during a recent conversation. Investors may be eschewing emerging markets as just too risky, but in more established markets, possibilities range from distressed assets to crossborder currency plays.He cautioned, though, that when investment returns, its stewards will need to maintain more of a feeling of accountability than they had portrayed in recent years. When there was potentially five times the amount of money circling real estate as there was property to buy, investors lost their perspective, their sense of responsibility. And that will need to be reignited.The lack of due diligence, the high prices and the large levels of debt financing involved do not in the aggregate really represent a new phenomenon. The natural exuberance of the market has historically led to a cyclical rise and fall in investors’ level of caution, just as it has for financiers. History does tend to repeat itself, as the memory of tougher times seems to fade with the return of stronger markets. It will be up to investors to defy that natural tendency and strive to adhere to smart spending practices, even when taking greater risks to generate increased reward.The good news is that there are role models to follow in every area of the commercial real estate business. This year, CPN revised its Goldbook annual guide to focus on such companies, providing, in effect, a gold standard for the industry. These companies remain active but selectively so, contributing liquidity to the market but at the same time strategizing carefully. They are altering their strategies to meet market shifts. And they are thinking creatively about new alternatives and solutions.For investors, one of the biggest problems, other than finding financing, is determining a property’s value. Without an active market, there are no comparable deals against which to model. And if anybody knows this, it’s the retail investors, which daily face the fear of a falloff in consumer buying. Predicting viability of shopping centers has become more critical than ever, for while national vacancy averages remain in the single digits, certain centers are bound to surpass the double-digit mark before too long.This quarter’s CPN-Nielsen Claritas Special Report offers some new tools for prediction, just in time for the International Council of Shopping Centers’ RECon conference. Through proprietary research into the relationships between property metrics, the Nielsen Claritas team hit upon some interesting findings that are sure to help determine the health of larger retail properties and, by extension, their value in the market.Finally, if you are in search of a central resource for green building design, be sure to visit www.greenanddesign.com to read the launch issue of Nielsen Business Media’s Green & Design digital magazine, a compendium of expertise from CPN and sister publications Contract, Hospitality Design, DDI, Kitchen & Bath Business and Multi-Housing News, with Contract editor-in-chief Jennifer Busch as editorial director.As always, I look forward to your feedback.Suzann D. SilvermanEditor-in-ChiefP.S. If you have thoughts on these or any other issues, please e-mail me at suzann.silverman@nielsen.com.