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Feb 03 2015


On November 12, 2014, a panel of eminent leaders in real estate finance participated in a candid discussion on the state of the real estate investment climate at the Kellogg Real Estate Conference. Moderated by prominent real estate investor Jay Weaver, a Managing Principal at Walton Street Capital, the panelists drew from influential firms representing a range of investment platforms and asset classes. Panelists included Jeff Barclay, Managing Director at Goldman Sachs; Jeff Friedman, Co-Founder and Co-Chief Executive Officer at Mesa West; Greta Guggenheim, Co-Founder and Chief Investment Officer at Ladder Group; and Adam Metz, Managing Director and Head of International Real Estate at The Carlyle Group.

Much of the discussion focused on lingering effects of the economic downturn. In particular, the panelists agreed that the lending environment remains constrained relative to before the recession. “Leverage has not yet returned in a big way,” observed Friedman, as interest rate policy continues to keep pricing low for lenders. Metz noted that lenders are in a difficult position, receiving “mixed messages” as regulatory authorities continue to be stringent while other market forces urge banks to extend more credit. Nonetheless, lenders are beginning to reenter the market at an accelerating pace, creating competition and favorable terms for borrowers. Panelists observed that lending has shifted from smaller loans in higher volumes to larger loans extended primarily to private equity firms. Concurrently, the CMBS market continues to get frothier, but remains off its 2007-2008 peak levels. Panelists also noted a gradual return to commingled funds, after investors shifted away from commingled funds toward separate accounts during the recession.

Despite challenges in the lending environment, the panel agreed that investor appetite for development is likely to return in the near future. While core buildings in the strongest urban markets—New York, San Francisco, Boston—were the first to recover, capital is returning to areas where cap rates are higher, including Chicago, Atlanta and Austin. “Investors are looking for relative value now,” noted Metz. Development is likely to be the next frontier as property values return to above replacement cost. To date, development has mainly returned for multifamily projects in isolated, supply-constrained markets with strong fundamentals. Current hotel supply is at historically low levels, and there remains relatively limited commercial office development. Nonetheless, the panel agreed that activity in these asset classes is poised to return. In addition, more niche, specialized asset classes—student housing, senior housing, factory outlets, cell phone towers—have also emerged as attractive areas for investment, as institutional investors search for value opportunities.

About the Author

This article was written by Mitch Vainshtein '16.