(To read more on the net lease market, click here.)
NEW YORK CITY-The risk factor needs to become a bigger factor when assessing the viability of deals, panelists at RealShare Net Lease noted. "People have forgotten about risk," said Gordon DuDan, president and CEO of WP Carey & Co. "Lending has been pushed to the wall." Other issues that threaded through various panels and presentations included cash flow, replacement costs, shareholder activism, supply and living in the post-Enron world.
Will Eglin, Lexington Corporate Properties Trust CEO, said his firm in the recent months has become a net seller. "We slowed down our acquisition pace. Until cap rates come up, we'll continue to be a seller."
There has been a pricing shift in short-term deals, Bruce MacDonald, president of Net Lease Capital Advisors, pointed out. "Many are sitting on the sidelines, waiting it out. But that won't be in the long term."
Michael Ashner, chairman and CEO of Newkirk Realty Trust, said tenants have become "more powerful than they were 10 years ago." He also predicts that the market will become more creative. "Something's got to give."
Replacement costs are an issue that is being watched "closely," according to Laurie Hawkes, president of US Realty Advisors LLC. The parties in the deal need to "maintain discipline." She expects that shareholder activism will continue to become more of a factor. "It's becoming a bigger issue; shareholders are putting on the pressure."
Ethan Ness, principal of CRIC Capital, sees a possible evening out of the market to factor in risk. "We've had it so good for so long. The global market will recede and we'll not be on auto pilot as we have been. It's been an absurdly overheated marketplace." And Jeff Hughes, senior director, Stan Johnson Co., said he's seen a lack of exit strategy. "They need to understand balloon and residual risk."
"There's a whole confluence of events," commented W. Kyle Gore, managing director, RBS Greenwich Capital. "It's doing business in the post-Enron world." Barclay Jones III, executive vice president at iStar Financial, added that corporations are requiring flexibility in deals.
Approximately 230 industry professionals attended the conference, which was produced by Real Estate Media. The firm is publisher of Real Estate Forum and GlobeSt.com.
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