The keynote speak at the conference was John Schreiber, President of Centaur Capital Partners, as well as Partner and Co-Founder of Blackstone Real Estate Advisors. Mr. Schreiber has overseen all Blackstone real estate investments since 1992. Previously, Mr. Schreiber served as Chairman and CEO of JMB Urban Development Company and Executive Vice President of JMB Realty Corporation. Mr. Schreiber is a past board member of Urban Shopping Centers, Inc., Host Marriott Corporation, The Rouse Company and AMLI Residential Properties Trust, and he currently sits on the board of JMB Realty Corporation and a number of mutual funds managed by T. Rowe Price Associates.
During the keynote address, Mr. Schreiber focused on several issues. First, he discussed general market trends in the real estate industry. He noted that the industry now has more players than ever, particularly with the influx of private equity and hedge funds. With respect to the investing environment, he added that prices are at an all-time high, while, conversely, the return on capital has decreased to an all-time low. As a result of the recent subprime fallout, many CMBS firms have blown up, driving multi-billion-dollar write-offs on Wall Street and forcing rating agencies to re-evaluate their methodologies. The result has been a substantial decline in real estate value, creating an environment where the debt financing outstanding is in excess of valuation. Mr. Schreiber’s prediction for the future was one filled with heightened uncertainty. He noted that under current market conditions, there is $395B in outstanding LBO debt, with a valuation of significantly less. In the future, he predicts a return to sanity in pricing, investing, and spreads. He predicts that leverage on future private equity transactions will be significantly lower as deals like the one his firm conducted for Equity Office Partners for $39B and 92 percent leverage will no longer be possible in these types of conditions. He, thus, predicts the market to experience a five to ten percent price correction over the next several years. He sees real estate capital investment moving abroad into regions such as India, Russia, and China. Conversely, he also noted that there are some positive attributes to the present economic environment. He stated that the REIT market has maintained stability, commercial real estate vacancies have hit all-time lows, and interest rates have declined and are expected to decline further, while industry fundamentals look good across the board.
The final portion of Mr. Schreiber’s talk was spent discussing careers in real estate and providing those present with helpful hints for success. He noted that all strong money managers need to learn and understand the facts, know the competition, price at the cost of capital, and realize that moving real estate capital is mainly about sales and communication. He was especially critical of money managers who lack the ability to invest with discipline. Saying “no” to a bad deal is a skill that is absolutely pivotal in the business. Additionally, he noted that those considering pursuing a career in real estate need to be competitive, have a great work ethic, be street smart, and have the ability to read people. He also noted the importance of evaluating one’s mentor to ensure that they possess integrity, knowledge, and willingness to spend time to develop the skills of their subordinates. In his view, real estate development and investing is a business driven by entrepreneurship, networking, and trust. Entrants need to be willing to take a risk, network all the time, and stand by their word if they intend to be successful.