AUSTIN, TX-Henry Cisneros, the keynote speaker at this spring’s NAREE conference, addressed the crowd in straightforward terms regarding the ups and downs of the tumultuous housing and multifamily market. Cisneros explained that previous advice to investors had been to keep their powder dry, but now liquidity “can act on plentiful” deals.
Cisneros noted that his recent trip to China has changed a lot of his perspective on foreign investment. Notably the Chinese are leery to invest in the timeline of the US recovery. Values are dropping below replacement cost on numerous properties, so the idea would be to buy, fix and hold for five to seven years and let the economy rejuvenate the property’s value. China, however, wants a shorter timeline and has been reluctant to enter into the fray.
There is the notion, Cisneros points out, that the hotel sector can lead commercial real estate back to its halcyon days as downtowns of gateway cities become opportunities. Apartments, as well are seeing a demand as home ownership declines and immigrants require more space in urban regions.
The other investment opportunity right now is a nontraditional fundamental: infrastructure. There are numerous assets within ports, transportation, roads, bridges, tunnels, terminals with tolls and fares, which present an opportunity for investors to get capital into the rebuilding process. His current company, in fact, is investing in toll roads within Austin which will change rates based on traffic flow.
Meanwhile, he noted, office, retail and industrial space are suffering terribly. Retail is in “triage conditions” as Goldman Sachs estimates that the US is 30% over-retailed compared to the rest of the world. However, the biggest issue within the US currently that is affecting the US market is that even within the better performing multifamily markets, there is a “drive ‘til you qualify” mentality. Cities are finding that their main municipal employees are not readily available because they can’t afford to live inside the city which they work for.
Asked if the pushing of home ownership was a mistake, Cisneros pointed to the corruption in the marketplace as the real issue. “There should be more emphasis on rental,” he explained. But embedded in our American culture is home ownership. “There’s a logic to it,” he said. “Home ownership is the engine to the middle class.” People’s net worth, he assessed, is defined by homes; for better or worse.
As importantly, builders will not build while property exists on the market at 70% value. As long as this trend of undervalued properties continues, it will depress prices.
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.
