Capital flows are generally continuing to improve liquidity within the recovering domestic commercial real estate sector. But illustrating the erratic recovery, suppliers of both equity and debt are favoring top-tier office towers and multifamily properties in leading markets — creating notable differentials in capitalization rates and mortgage rates and terms between those categories and locales and, well, pretty much everything else.
From the Current Issue
Risk is one of those elements of the real estate world that, more often than not, is viewed from the rearview mirror. In many ways, it is similar to hearing a big thump while driving down the road. The first thing you do is look into the rearview mirror to see what you’ve just hit (hopefully it’s nothing more than the neighbor’s dog that’s been keeping you awake for the past two months).
Commercial real estate markets continue to recover from the most severe economic downturn since the Great Depression. Credit to the sector virtually shut down in 2008 and only began to return in a limited capacity in 2010. As one of the largest sources of credit for commercial and multifamily real estate in the United States, the commercial mortgage–backed securities (CMBS) market is an important element of the more than $3.2 trillion commercial real estate debt market, currently comprising roughly 26 percent of the overall market. It is essential to have a healthy and disciplined new-issue CMBS market.
Confronted by debt, deficit and demographic challenges, the U.S. economy is facing significant headwinds. The recent report of no new jobs gained nationally in the month of August provided yet another reminder that the economic recovery from the 2007–2008 recession, already the most prolonged since 1950, is likely to continue to be a long, slow ride. GDP growth forecasts have fallen to roughly half the pace of prior recoveries, but more troubling is the very slow pace of job growth.
The office property markets have seen significant price movement in the past five years, and recent activity has focused on the trophy and troubled ends of the spectrum. Price dispersion may provide a signal of market turning points well before the actual turn.
Today, an institutional real estate investor may wonder, “What’s this rigmarole about SEC registration, and how does it affect me?” Well, when the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010, it set in motion changes that could significantly alter the American financial regulatory environment. Previously, investment fund managers could avoid registration with the Securities and Exchange Commission (SEC) by limiting the number of funds they advised to less than 15. The Dodd-Frank Act repealed this exemption and replaced it with a general requirement that advisers managing assets worth $100 million or more must register with the SEC unless they fall within one of several quite limited exemptions. U.S. advisers to large securities funds will need to register with the SEC by March 30, 2012. Moreover, advisers currently registered with the SEC, but now deemed too small, will be required to withdraw their federal registration and register with the states.
Just about every investor everywhere on earth is concerned about how to structure their portfolios in order to achieve their stated objectives in the face of increasing volatility and a stubborn low-yield, low-return environment. What is the right approach to asset allocation, and what is the right mix in light of that approach, seem to be on the minds of just about everyone — particularly at the senior investment officer level.
In his new book, The Leader’s Checklist, Michael Useem, management professor at the Wharton School of the University of Pennsylvania, presents a collection of 15 principles that can help leaders navigate successfully through even the most difficult circumstances. Using such milestone events as the rescue of the 33 Chilean miners in 2010, the collapse of AIG in 2008 and the surrender of the Confederate army at Appomattox in 1865, Useem illustrates the difference between good and bad leadership, and how to achieve one’s own personal leadership success. The Leader’s Checklist is the first e-book published by Wharton Digital Press.