By MICHAEL
GOTTLIEB
CREJ Editor
The International Council of Shopping Centers
Spring Convention in Las Vegas is no longer the largest
retail real estate convention. It is now the largest real
estate convention, period. Much of the buzz among the
record-setting crowd of 50,734 real estate professionals on
the newly expanded convention hall floor transcended retail.
Whether it was the tightening of the capital markets, the
slowdown of the residential market, the subprime lending
collapse, the influx of petro-dollars from oil-rich
countries, the Grubb & Ellis/NNN Realty Advisors
deal, sustainable and green design or new emerging
development markets, there were plenty of people buzzing
about these trends along, of course, with the latest trends
in retail.
"A lot of
different sectors of the real estate community are watching
this convention," said Tipton Housewright, Omniplan
principal. Perhaps the biggest buzz was the expanded scope
of the convention, which added 800,000 square feet of space.
"Everyone is astounded by how big the convention is," said
Philip D. Voorhees, senior vice president of retail
investments for CB Richard Ellis. "This is the most
productive year I've had here in a while." Fellow CB Richard
Ellis broker Timothy L. Bower said that after more than two
decades of attending ICSC he comes for the networking. "It's
too busy now to sit down and actually negotiate a deal," he
said. "My clients expect me to be here whether or not deals
get inked here."
The increased size
and scope garnered mixed reactions from the attendees. Prime
spots on the convention floor are extremely valuable, but
newly renamed Marcus & Millichap Real Estate Investment
Services gave up its spot for a larger location in the
new South Hall. Bernard J. Haddigan, managing director and
national director of Marcus & Millichap's National Retail
Group, was pleased to be at the gateway to the retailers.
"This place is much busier than where we were before," he
said. Many noted a diminished density on the traditional
convention floor as the expansion in space exceeded the
expanded attendance. "You can tell the reduction of density
on the ICSC floor," said Andrew C. Florance, president and
chief executive officer of CoStar Group Inc., which
announced a new partnership with Accruent, to provide
both retail real estate and operational information on a
single platform. But that didn't deter the enthusiasm that
people had about real estate. Whereas in 2006, people were
concerned about risks on the horizon, now the housing market
has slowed and underwriting tightening the enthusiasm seemed
undiminished.
"This is an
interesting time for us because there are so many forces
fighting today," said Hessam Nadji, Marcus & Millichap's
managing director of research services.
He said that market watchers and economists seem divided as
the housing slowdown definitely impacted the U.S. gross
domestic product. Yet, national employment is strong and
real estate investment is aggressive with 23 deals of more
than $100 million completed in the first quarter. Haddigan
said that his firm's 350 retail brokers are on track to do
$6.5 billion in transactions for 2007, a company record.
"Over the last 10 years we're seeing velocity increase year
over year over year," he said. "This is not a cycle." Still,
many were watching the capital market pullback that began a
month prior to the convention as commercial mortgage-backed
securities spreads widened, causing underwriting standards
to tighten with loan-to-value ratios topping out at about 60
percent and 10-year, interest-only loans are difficult to
find. "It seems like someone tapped the breaks," said Brooks
Benjamin, vice president with KeyBank Real Estate Capital.
KeyBank's Northern California-based Caroline Sjostedt added
that she doesn't believe that Wall Street is going to leave
the real estate market.
"It puts pressure
on deals," said Richard Walter, president of Faris Lee
Investments. "It has really created a chink in the
armor. CMBS will maybe go back to the old way of doing
business, more back in the box." But that may open up
opportunities for other existing financial sources that have
been sidelined by aggressive underwriting. "I still don't
see a dramatic shift in capital demand for real estate,"
Walter said. "The downside is it does open the door for
higher interest rates." Pacific Coast Capital Partners
Managing Director Greg B. Galusha said that tighter
underwriting standards will either force property owners to
retrade or force equity investors to accept lower yields on
underwriting. "I think a lot of people are nervous," Galusha
said. "We are re-evaluating more regularly where profits can
be harvested in our portfolio. "I don't think that a lot of
the users of capital appreciate the pullback in the debt
market," he said. But the large new booths
representing Russian and Middle East oil wealth may indicate
a new wave of investment as Galusha noted that oil-rich
investors are making their presence felt in U.S. real estate
deals. "They are looking for a place to preserve their
capital," he said. "They are not trying to chase yield." Rod
Astarabadi, president of Pacific Castle, could not
help but recognize the influx of foreign capital since his
firm invests on behalf of Chinese-American investors.
Pacific Castle recently partnered with Prudential to create
a $500 million fund to invest in West Coast retail, further
substantiating Pacific Castle's niche.
As investors
expanded their product type, they also increased their
market focus, with areas such as the Inland Empire's High
Desert emerging as strong opportunity plays despite exposure
to the housing slowdown. Joseph W. Brady, president of
The Bradco Cos., said that home sales are one-fifth of
what they were a year ago, but he characterized the shift a
a "hiccup on the radar screen." "The bottom won't fall out,"
Brady said. "We are twice the size we were before." That
characterization easily could be applied to the convention
itself as talk of still more expansion circulated the halls.
- E-mail Michael_Gottlieb@DailyJournal.com
