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Feb 03 2015


Roy March, Chief Executive Officer of Eastdil Secured, gave the keynote address at the 2014 Kellogg Real Estate Conference. Mr. March focused on competing in a global capital market and the overarching theme was the current favor being shown to commercial real estate as investors search for yield, but equally important was the need to avoid being surprised by potential stagnation.

Mr. March began his discussion by laying out the key questions on every investor’s mind: where will people be able to earn a 7.5% return and how much longer will low interest rates exist? According to Mr. March, the positive elements of the real estate markets at the moment include liquidity, available financing, global flow of capital to the U.S., and a low supply. However, there are concerns regarding the global bond market (predicting low rates for some time) and whether we’re heading toward stagnation given how far we are into recovery. In terms of recovery, Mr. March noted that initial jobless claims are back to 2006 levels and that there have been 9 consecutive months of jobs added in the US. This then raised the question of how quickly the US can again reach the pre-downturn 5.5% unemployment level. While the headline unemployment rate is back to the 2003 level, Mr. March stressed the need to factor in labor participation, which is well below 2003 levels, when looking at unemployment.

Mr. March then turned his attention to REITs, which have outperformed other asset classes since January 2010 but have significantly underperformed if measured from 2007. Mr. March’s opinion was that real estate looks like an investment with current return plus growth potential and that the market continues to search for yield and safe havens. Next, Mr. March discussed the debt markets and the existence of several big, unannounced deals that could take 2014 volumes north of $100B. Similar to the capital markets panel, Mr. March noted that banks are nervous about the current regulatory environment, and that this is limiting their lending. He closed the topic by reminding the audience that leverage is what killed commercial real estate and the economy, which is likely to keep people away. In his discussion of the equity markets, Mr. March focused on growing global demand, absorption, and rent growth. In terms of global demand, he mentioned Sovereign Wealth Funds (six of the top ten are Asian Pacific) and how domestic pension funds don’t want to compete. Finally, Mr. March also highlighted several key investments in the U.S. and U.K. from Chinese and Taiwanese investors.

Mr. March closed the discussion with these takeaways:

  1. The United States is a key market for global investors,

  2. Pricing is at near/beyond peak in primary assets and markets and is likely to go higher,

  3. Properties with rollover/vacancy are starting to price well given improving fundamentals and transitional debt,

  4. Properties in Tier II markets are improving quickly,

  5. There is limited supply, and no immediate signs of overbuilding,

  6. Commercial real estate continues to compete favorably on a relative basis.

Finally, he cautioned the audience against ignoring the global bond markets and their ability to predict future growth. In an ominous ending, March predicted another “black swan event” or an unexpected event that has a major impact on history.

About the Author

This article was written by Dani Sassower '16.