ULI/McCoy Symposium:
Real Estate Finance: Facing Uncertainty
Sixty real estate leaders came together for the 23rd annual ULI/McCoy Symposium on Real Estate Finance, held in December in New York City.People and investors with deep pockets here in Mesa might want to take a cue from one of those iconic roadside attractions re-activated by a public-private partnership and form an investment pool .....think a out it
Invited executives are high-level decision makers from major real estate investment and capital markets firms that are actively investing or lending in the commercial real estate market.
Typically, they hail from major Wall Street firms, institutional investment management firms, real estate investment trusts (REITs), private equity firms, commercial banks, insurance companies, and leading private owner/development firms.
Extracts below from this source > Urban Land Institute 03 Feb 2017
How was the mood at the conference different this year than in previous years?
Everyone was unsettled because . . .
Would that affect international investment in U.S. real estate?
McCoy: There could be a de-globalization of real estate
Are there any short-term risks to real estate?
McCoy: It’s Donald Rumfeld’s “unknown unknowns” or a black-swan event. . .
Is there any clear direction for real estate?
McCoy: The greatest friend and the greatest enemy of real estate is debt because. . .
How will this uncertainty affect the real estate capital markets? For example, experts used to worry about more than $1 trillion in ten-year CMBS [commercial mortgage–backed securities] loans made before the crash that would expire over the next few years.
McCoy: Speakers at the symposium still mentioned the “wall of CMBS,” but with less fear and trepidation. A lot of the good properties got sold. That’s the good news. The bad news is . . .
Experts at the symposium also talked about the new risk-retention rules as being an imminent factor for CMBS. The people at the conference weren’t worried about it.
The banks are so well capitalized—they thought risk retention could be handled by financial institutions.
How well are banks positioned to handle uncertainty?
McCoy: Commercial bank liquidity is at an all-time high—but the cost of regulation is very deleterious to community banks and small banks, and a record number of them are going under. The Comptroller of the Currency and the Federal Reserve and the Securities Exchange Commission have permanent offices in the large banks.
Do you see a possibility for a hard landing for real estate?
McCoy: It’s more individual sectors and individual cities. A couple of speakers thought that we could have a recession in a couple of years. I thought that was a little extreme. It would be a recession with higher interest rates.
If I were an investor about to buy a property, maybe some strip centers or apartment buildings, what would you advise?
McCoy: I would say borrow now, borrow long, and keep some powder dry.
But what if the only loan I can get is short-term, high-leverage debt?
McCoy: Sell as soon as you can. It’s a time bomb.
We are sailing into unpredictable waters. Real estate generally is in good shape. Keep your powder dry. Avoid overborrowing, but take advantage of still historically low interest rates. Extend maturities. Manage your debt. The next three years could bring about increased risk and turmoil. Be prepared!
Bowen H. “Buzz” McCoy, formerly responsible for the real estate financing unit at Morgan Stanley, is a ULI life trustee and president of Buzz McCoy Associates in Los Angeles. His most recent books are Living into Leadership: A Journey in Ethics (Stanford University Press, 2007) and The Dynamics of Real Estate Capital Markets: A Practitioner’s Perspective (ULI, 2006).
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