Major Buyers Debunk '08 CRE Doomsday

(Read more on the debt and equity markets.)

Younan

DALLAS-Three leading buyers are dismissing the 2008 Doomsday reports for commercial real estate by economists nationwide. Although they plan to alter some buying patterns, the buyers steadfastly agree that the New Year is primed for the well endowed.

Executive opinions from Younan Properties Inc., Behringer Harvard Funds and Cobalt Capital Partners, most likely reflecting peers in their income group, run counter to soothsayers’ claims that hard times will befall CRE next year. The common belief is opportunity is knocking for the deep-pocketed crowd because the credit crunch has eliminated high-leveraged buyers from the bidding ranks due to lenders’ tightening underwriting practices.

“We will benefit from it. The smaller players will not be able to compete and buy buildings,” says Zaya S. Younan, chairman and CEO of Los Angeles-based Younan Properties Inc. “That’s the one change I see in 2008.” In anticipation, Younan is planning to deploy $3 billion on acquisitions next year in Chicago, Dallas and Houston. This year, he’s spent $1.5 billion for 19 office buildings, totaling 4.4 million sf in the three cities.

Friedland

Dallas-based Cobalt Capital Partners spent $420 million this year to acquire 8.5 million sf of industrial product for two funds in their 14 major metro markets. “We think the opportunities will be a little bit different for buyers like us that operate with relatively low leverage. There may be more opportunities,” says managing partner Lewis D. Friedland. “With less competition on smaller properties, we expect a little bit better pricing.”

And Behringer Harvard, which recently acquired Toronto-based IPC US REIT for $1.4 billion, is going into 2008 ready to spend more. “We believe we’ll be able to be very selective at what we go after,” says James Fant, senior vice president of real estate for the Dallas-based investment group, “and be able to buy at better returns than what we’ve seen in the past 12 to 24 months. I think we’re going to be buying properties at higher cap rates.”

Fant

Behringer Harvard might not top its 2007 deployment, but there’s a good chance it will come close. “This was a banner year for us. To think that we can do $3 billion again next year, we’ll just have to see what the market brings to us,” Fant says. “The message we consistently hear is there’s going to be a lot of product coming to market next year and that bodes well for those of us who are well positioned and not high leveraged.”

The aftermath of the credit crisis has had a positive impact for the power players. “What we’re left with are well-capitalized, institutional, low-leveraged investors,” Fant says, adding any subprime fallout still to come “can produce opportunities for folks like ourselves.”