Attorney's Jeffrey Temple and Andrew Weiner moderated the panel of five investment bankers, advisors, and asset managers specializing in real estate including: Martin Cicco, formerly of Merrill Lynch; Michael Cochran, senior managing director of Eastdil Secured's Management Committee; Michael Giliberto, a managing director at JPMorgan Chase; Thomas Harney, senior managing director of Bear Stearns' Real Estate & Lodging Investment Banking Group; and John McGurk, founder of Rothchild Realty Inc.
Early on, moderator Temple queried panelists to predict what affect the Fed's rate cuts will have on commercial real estate in the next three to six months. A majority of panelists said that it will have a positive affect, but will take a lot longer than three months to see a difference.
"Once we can get back to a trading market, and unlock some of that paper, things will change," Cochran said. "It's going to take us a good 18 to 24 months to get through." He added that when lenders are cautious, it can have a dramatic impact on the market. "Finding capital institutions is the key to unlocking transaction flow."
Giliberto, who believes that the east and west are the most attractive markets for investors during the crunch, predicts that it should be at least a year or more to get through the crunch; however he adds that it's hard to actually say if "we are in a crunch at all." He explained that people are waiting to see what will happen next.
Harney explained that the market is much more of a momentum game than people like to admit. "We have moved from an 'I believe' market to an 'I don't believe' market." He explained that those who are forced to sell will be the true distressed sellers. "There's plenty of equity and there's a lot of people who are looking for those 1991 deals. And then, everyone who has bridge loans and short-term borrowing will be next."
Cicco added that "people are questioning cash flows in every asset class. There's a real concern of a recession and buyers are questioning cash flow." As far as which property types and geographic markets have been most impacted by the recent credit market turmoil, Cicco said that multifamily assets feel better to him than other classes and that retail is a wild card. "Developers in all asset classes are reassessing and pulling back a little bit.
McGurk agreed that developers have pulled back. He explained that "tertiary and secondary retail has widened dramatically." He adds that "I don't anyone is underwriting the future today. There is an entire fear factor concept here. We don't know what other parties are going to do as many people are becoming more cautious."
Cochran said that New York City competes on an entirely different scale. "The city competes on a global scale on a per sf basis and per pound basis. It is relatively attractive and still generates an enormous amount of off-shore interest. Foreign capital is a huge player here."
When panelists were asked about whether they would be buyers, sellers or just watching over the next three to six months, decisions were equally split. Cicco, Cochran and Harney noted that they would be watching. "It's going to get worse before it gets better," Cochran said. Both Giliberto and McGurk noted that they would both be buying and selling.
Panelists were also asked to jump one year ahead at the same event and reflect on 2008. Most panelists were certain that there will be a lot more certainty in the marketplace. "We won't be sitting here just watching," noted McGurk. "There will be more transactions by the end of 2008 then the first half of the year."
Harney agreed that there would be a lot more certainty. "We won't just be staring at each other…we will have some sort of philosophy." Cochran added that the rules and strategies of the game will have changed by then. Giliberto said that by that time, capital markets will settle down.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
