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“Don’t listen to what the marketplace is telling you. Think about how you want to run your business,” panelist Penny Pritzker said April 6. “The future of investing is getting back to basics.”

Penny Pritzker

‘Staying alive’ in real estate

In a panel discussion, real estate leaders Debra Cafaro, Penny Pritzker and Sheli Rosenberg focus on the future of the industry

By Amy Trang

4/14/2010 - Debra Cafaro said she felt a bit “stupid” when her colleagues in real estate were taking advantage of the flow of credit and overleveraging their companies.
But Cafaro, chairman, president and CEO of Ventas Inc., said her company stuck to its guns and continued its conservative, low-leverage approach. By doing so, Ventas was able to survive the mortgage meltdown.

“People underestimate how often things go wrong,” said Cafaro, who is also a board member for World Business Chicago and the Real Estate Roundtable. “In my career, I can see four or five times where in real estate, things have gone crazy.”

Cafaro and fellow real estate expert Penny Pritzker spoke to industry professionals and Kellogg students April 6 at a panel discussion themed “Staying Alive in an Uncertain Real Estate World.”

The panel was moderated by Sheli Rosenberg, the retired CEO, president and vice chairman of Equity Group Investments Inc. and the past director of the National Partnership for Women & Families and the Women’s Issues Network Foundation.

Pritzker — board chairman for TransUnion, Classic Residence by Hyatt, The Parking Spot and Pritzker Realty — said the crisis escalated because “financing became a commodity product. The lenders were doing what the next guy was doing.”

Pritzker and Cafaro said their companies’ focus on liquidity and leverage helped the firms survive over the last 24 months, and will enable the companies to thrive as they move ahead.

“Don’t listen to what the marketplace is telling you. Think about how you want to run your business,” Pritzker said. “The future of investing is getting back to basics.”
Pritzker added that some of the best investments her company has made include paying down debt and restructuring.

Cafaro said that Ventas has sought to make money by maintaining a lower leverage model and funding acquisitions with a majority of equity. However, most real estate people are “clinging to the view that they need to have a lot of leverage to make the returns they need to make,” Cafaro said.

For the real estate market to return to good health, Pritzker said, banks also need to be healthy enough to sell their loans. She added that banks are challenged to determine how to parse out their reserves among their credit-card debt, home loan and commercial real estate portfolios. Government policies are trying to help the banks get to a healthy state, providing them with low-cost capital and low interest rates.

“The transfer of wealth to the banks — which is necessary in order for them to absorb the write-offs they need to absorb in their portfolios — is what’s going on,” Pritzker said. “And it takes time.”

The panel discussion was sponsored by the Kellogg Real Estate Program.