I attended an equity conference last week, and felt it interesting enough to share my notes. The conference was attended largely by fund advisors and the funds that invest with the fund advisors. Fund advisors included Clarion, AEW, CBRE Global, Lowe Enterprises, Rockwood, Blackstone, Starwood, Colony Capital, and DLJ, to name a few. The funds and advisors explained their investment objectives and investment guidelines. The big take-away from this conference was that there is a groundswell of investor money flowing into the funds and the funds have a huge appetite to invest with their advisors; deals are sparse, there is concern that the core market and core property cap rates are too low, particularly in the case of multifamily and getting too low in other property types, causing many of the funds and advisors to look to secondary markets and value-add investments for higher yields. There was a lot of concern voiced with deteriorating restraint in CMBS underwriting, but all pretty much agreed that it has not hit 2005-2006 crazy and that the CMBS run should last through 2017.
Keynote Speaker / Ken Rosen / Chairman, Rosen Consulting Group
Ken Rosen is Chairman of Rosen Consulting Group, a real estate market research firm, Chairman of the Fisher Center for Real Estate and Urban Economics and Professor Emeritus at the Haas School of Business at the University of California, Berkeley. Mr. Rosen is also a trustee of the Urban Land Institute and a member of the board of directors of several non-profit and for-profit entities that deal with real estate finance and development. He has authored over 100 articles and four books on real estate and real estate finance. He was formerly the Chairman and founder of Rosen Real Estate Securities LLC (RRES), and Chairman, founder and portfolio manager of Lend Lease Rosen Securities, both REIT money management firms. Also, Ken served as the special real estate advisor to The Davos World Economic Forum, and from 1985-1990 he was Consultant/Managing Director of Salomon Brothers' Real Estate Research Department. Mr. Rosen received his Ph.D. in Economics from the Massachusetts Institute of Technology, and a B.A. with highest honors from the University of Connecticut in 1970. He was a Professor of Economics at Princeton University.
Ken Rosen is also a long-time friend of Janet Yellen and knows her well. He believes that with 2.5% GDP and 6.3% unemployment is reasonable at this stage of the recovery, and that the Fed will start reducing bond buying enough that he expects the 10-year Treasury up 1% by the end of this year and up an additional 1% by the end of 2015. The economy has received a huge with the boom in oil production from North Dakota, Texas and Colorado, making the US will be the largest exporter of oil in the world, surpassing Saudi Arabia by 2015. This was a big surprise and is creating a lot of jobs, which will make the Dollar stronger, produce energy independence and has already lowered gas prices. He expects cap rates to increase (up 90 bps) with interest rates, but also expects rents to increase due to lack of new development.
There has been a big shift in jobs globally as a result of the internet. Northern California is a boom largely due to the shift from print media to electronic media (Google, Facebook, etc.), while Southern California is lagging. The Euro is over valued by 30%, and if France and Italy don’t rebound, the Euro is in trouble and will probably go. China has a huge residential real estate bubble, with investors buying 3, 4 and more homes for rentals, financed by a shadow banking system which is not controlled by the government.
78 million "Baby Boomers" are turning 65 over the next two decades, resulting in a very big need for senior housing and assisted living, and many moving to less expensive states. There are 4.4 million more renters today due to overburdened Gen-Y student loans, higher down payments requirements and minimum FICO scores of 700, resulting in a big shift from SFR to multifamily development.
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