There will be so many opportunities in the next 18 months that "this will be the first time in many years we will raise capital outside the company," the chairman and founder of locally based Hall Financial Group tells GlobeSt.com. "I view the opportunities that are coming up as better than any we've seen since the mid-1980s." Hall says the plan is to amass capital from US investors to buy bricks and mortar, notes, mortgages and fund companies that need help. And, he's got financial institutions squarely in his sights to cherry-pick their debt.
Hall made his fortune mining the apartment market in the 1980s. This time, his favorite target will be high-end residential, specifically unfinished condos caught up in "complicated messes," he says. "We are going to focus on things that play to our strengths and historical nature. We are replaying a lot of things that we hoped would never happen again." But, his marching orders for the team are to stay flexible on property type.
Hall says his company is even more prepared this time than it was in the 1980s to seize market opportunities. "We're really in a mode of trying to take advantage of the opportunities. It will be challenging and fun and hopefully very profitable," he says. "I am confident it will be an advantage for us. At the same time, I'm sorry these problems are here for the people who are going to be hurt."
The street-savvy investor is particularly concerned about single-family owners although his scope is commercial. "We are talking about people who worked their whole lives, played by the rules and then the world changed quickly and they are losing their life savings," he says.
Like economists near and far, Hall forewarns commercial real estate will take much longer to recover than the other sectors. "It's going to be a very long and difficult downturn for commercial real estate. This is not a short blip. It's not going to be over in six to 12 months," he emphasizes. "The real estate cycle is going to be longer than the recession itself."
Hall Financial Group has de-leveraged and downsized debt, which its chairman strongly advises all to do in order to weather the long haul ahead. Second, Hall advises management to "be realistic" about overall business and "not treat the future like they did in 2006 and 2007." Third, lower overhead. And finally, accept the fact that cap rates are up and are going to stay up.
Hall predicts a lot of assets will be traded once fair values emerge from the ashes of the financial debacle. He estimates values will drop 25% on average, which could erase an owner's entire equity if an asset is highly leveraged.
Hall says the inevitable erosion of values is why it's so critical to de-leverage to weather the storm. "As lenders have the ability to squeeze borrowers for pay-downs, they're going to do that. And, that's going to be the process for 18 months," he says.
"Real estate is a local business. Each area will be different," Hall says. "In the mid-1980s, Dallas was one of the worst areas in the country and today it's one of the best." Developers didn't overbuild this time and property values didn't run up as high as other areas of the country.
But, the future will hold less demand for space amid layoffs and rising unemployment. The rapidly changing times require "a fresh look at liquidity and cash flow and evaluations of markets. Many people aren't good at that," Hall says. "It takes an optimist to be a successful real estate owner and developer. In good times, that's how you get the deal. In a challenging environment like this, being optimistic can be detrimental. In this environment, it takes a realist to survive."
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
