||Ronald Dickerman ’87, Madison International Realty
||Lisa Kaufman ’92, Lasalle Investment
||Tom Shapiro, GTIS Partners
||Peter Sotoloff, Mack Real Estate Credit Strategies
By Rebecca Bendetson ’21
Amidst the longest economic recovery in post-war history, four experts in global real estate gathered to discuss current investment trends. Ronald Dickerman ’87 of Madison International Realty moderated the panel and set the stage with a brief overview of our macroeconomic climate. He shared that the US is seeing positive GDP growth, growing at 25% cumulatively during the expansion. The stock market index is experiencing growth, unemployment is low, and the recent round of interest rate cuts can be attributed to slowed economic growth and trade wars. Dickerman used this setting to transition the floor to our panelists, asking what they think about the late cycle environment and how this impacts the opportunities they are pursuing.
Lisa Kaufman ’92 of Lasalle Investment said that the Global easing cycle has been the real story in 2019 and has resulted in strong returns in almost every asset class. Global real estate securities are up 25% year to date, similar to equities and bonds are also performing well. Kaufman sees that we’re at the sweet spot for real estate with low interest rates and slow but sufficient growth to generate enough demand to match supply. Public real estate securities are fairly valued today as compared to alternatives. After a long period of trading at discounts to private real estate values (NAV), public real estate securities are currently trading at premiums suggesting some upside to private real estate values.
Tom Shapiro of GTIS Partners followed up by focusing on the microeconomic dynamics and how immigration is increasing the cost of labor. “A storm is coming at some point but we don’t know when exactly it's going to hit and how deep it will be.” Despite the looming recession, the market seems to be resilient now. However, immigration regulations are increasing the cost of labor, sending construction costs up. He focused in on the opportunities with millennials. The millennial generation (~22-37 years old) is entering their 30s and is looking to rent homes, as opposed to buy. This is creating demand for communities with houses to rent. Moreover, he shared that with office, people are craving more flexibility on leave terms, in turn, increasing capex and TI costs.
Peter Sotoloff of Mack Real Estate Credit Strategies, closed out this question noting that the macro and micro climates have put his firm on the defensive. While he does not see the recession being deep, the recession’s warning signs have been elevated with the complacent Federal Reserve and election year. He discussed how levered the current market is to venture economies and the opportunity in conservativism; a “… stay rich, not get rich” mentality. While open to retail, Sotoloff made note that he’s only interested if it is mixed use.
Dickerman then transitioned the dialogue to move to the global stage where Shapiro shared lessons learned from his investments in Brazil. Shapiro initially saw potential in Brazil with regards to risk. The buildings are structured differently—each floor of a building has a different owner. Therefore, he saw a development business that would be differentiated. The idea was to build to a 16% cap rate where it would normally be 10%. Interest rates were 12%. Brazil went through 2008 and was fine and then came the deep recession. Where this extends to the US is if you purchased office in 2006 and held it until today, you did well. His firm has been buying a lot of office with minimal leverage. With leverage, Shapiro stressed the importance of being prudent. If opening in a soft market in two to three years’ time, they'll need to make concessions to get it leased up.
Dickerman shifted the conversation to data and technology in the low growth environment and how everyone looking for alpha to find growth and isolate investment decisions. He brought up trends focusing on the last mile, home grocery, and autonomous vehicles.
Shapiro chimed in sharing that technology is allowing industrial to continue to be bullish. Advances have raised debates on how much parking will really be needed in the future. Technology has enabled the focus on population trends in different ways. For example, due to changes in demand, the cost of renting a one-way U-haul out of California is far more expensive than the same distance to move in the opposite direction. People simply aren’t as static as they were in the past. Technology has impacted the way real estate is valued because it takes data and thought on future human behaviors.
The dialogue closed by discussing what will happen at the end of the business cycle and beyond. With negative rates across the world, a wildcard in North Korea, and record dry powder in PE real estate, there is much to look forward to. The millennial generation will continue to be a focus. Technology advances will affect new software for reporting investments, data centralization within firms, and buildings themselves. Proptech will continue to disrupt. And, the oversupply of retail in the US will be repurposed.
Rebecca Bendetson ’21 is a first-year student at Columbia Business School, focusing on Real Estate and Finance. She graduated from Tufts University with a B.A. in Economics and minors in Chinese and Entrepreneurship. Prior to business school, Rebecca was a consultant at the leading consumer consultancy, C Space, where she advised the world’s leading brands on how to be more customer centric in their strategy. In the summer leading up to Columbia, Rebecca interned as a Real Estate Analyst at Cabot House.