PERE NY Summit 2014<\/a> this month examined the lessons learned from the recent global financial crisis, and how to prepare for the next.<\/p>\n\u201cThere will be a market correction at some point, likely triggered by a recession,\u201d said Mary Ludgin, managing director & director of global investment research at Heitman. \u201cWe are 64 months into the recovery. The time between recessions since World War II is 66 months on average, and we are clocking in on that. We should see a longer time frame than that because the past recession was as deep as it was.\u201d<\/p>\n
When it comes to ever popular baseball analogy, Ludgin estimated that we are in the seventh inning, perhaps taking a stretch.<\/p>\n
\u201cThough we might be getting extra innings, we should still be organizing our portfolios with the idea that recessions are inevitable,\u201d Ludgin added.<\/p>\n
Continuing with the sports analogy, Scott Stuckman, managing director at USAA Real Estate Co., took things a bit deeper. He said that you could view the industry like a baseball league, with different innings in different ballparks\u2014e.g. different markets, and different product types\u2014making the industry hard to read.<\/p>\n
\u201cSo much of the value we have gained is driven by capital, not exuberance by tenants taking more space,\u201d Stuckman said, adding that he is seeing a confluence of multiple foreign buyers from all regions of the world flocking into the U.S. in unison for the first time in his career.<\/p>\n
\u201cSo instead of baseball, perhaps I should say it\u2019s more like cricket,\u201d Stuckman said. \u201cNobody really understands what is happening, and you don\u2019t really know when it is going to end.\u201d<\/p>\n
Jonathan Schultz, co-founder and managing principal of Onyx Equities, believes we are earlier in the recovery. He cites frothy debt markets that are as hard charging as he has ever seen. That said, he did acknowledge that lackluster job growth should raise some concern.<\/p>\n
\u201cAs a real estate investor, job growth is one of the number one things we look at in the markets where we purchase,\u201d Schultz said. \u201cI don\u2019t see much job growth except for very specific places and very specific sectors. Healthcare and tech seem to be the two main growth industries at this point.\u201d<\/p>\n
Schultz is also keeping a close watch on loan maturities, with roughly $400 billion in CMBS coming due in 2015, 2016 and 2017. This batch is roughly twice the size of the previous set of loan maturities, meaning there are roughly twice as many loans with DSCRs close to or at 1.0 compared to the 2008 to 2011 maturities. Therein lays the issue.<\/p>\n
\u201cThese building are not necessarily bad buildings,\u201d Schultz continued. \u201cSome are over 80 percent occupied. As far as paying attention to where the next opportunities are, it is going to be about where these loans are coming due and or maturing, and they tend to be the suburban markets more than the cities.\u201d<\/p>\n
Stuckman said that his firm shies away from CMBS.<\/p>\n
\u201cAs a general view, we skip the CMBS. It is the cheapest drug, but there is no way out,\u201d he said, adding that USAA Real Estate Co. never used CMBS debt and never experienced a single foreclosure, workout or lost property during the recession.<\/p>\n
Instead, Stuckman said that his firm is keeping an eye on \u201cnecessity real estate\u201d in urban infill locations. This would be assets like grocery stores and fitness clubs, not the type of retail that could be hit by ecommerce.<\/p>\n
One key to coming out on top of the next downturn is to have the resources set aside to make a move.<\/p>\n
\u201cOne of the lessons learned from past cycles is that you have to start buying early, even while the knife is still falling,\u201d Ludgin said. \u201cHave capital ready to buy assets poised for recovery. Recessions shake loose assets you won\u2019t be able to buy at other points in the cycle: they are when you\u2019ll have a chance to get a piece of Class A regional mall, for instance.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
With high-flying fundamentals in core markets, it\u2019s quickly getting to be that time of the cycle when smart investors begin to examine and refine their portfolios and strategies in preparation for the next recession.<\/p>\n","protected":false},"author":1194,"featured_media":1004108321,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[22251,21742],"tags":[],"class_list":["post-1004108311","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-in-focus","category-latest"],"acf":[],"yoast_head":"\n
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