What are your favorite growth markets right now?
Texas continues to be strong given the fact that it's got a low cost of living, high quality of life and a diversity of businesses. Houston is benefiting from the energy sector. You've also got a strong healthcare and medical component that's working in its favor. And there's the port story; you will see good industrial opportunities. The energy and healthcare will do well for office, residential and retail. Houston is probably the single best market in the country outside of the coasts. But Dallas and Austin will be favorites for relocations from California and Illinois due to budget issues those two states are dealing with. Austin is attractive for its tech sector, and Dallas for its corporate, Fortune 500 environment. Denver also does well. It's a great location with a great airport, a low cost of living and a great, well-educated labor force. The energy and telecom sectors have done well there. I'd also throw out two markets that were near the bottom in 2009—Phoenix and Atlanta.
See coverage of Transwestern's investor symposium at www.globest.com/Transwestern
Is the gap closing between buyers and sellers?
We did a recent survey with several senior real estate executives and found that more than 50% of the respondents felt that there is at least a 20% valuation gap between buyers and sellers. Generally speaking, there is a decline in global transaction activity. The flipside would be that if that can become unlocked, there are opportunities for buyers. The survey also showed that gap was not fully going to diminish in the next 12 months. What was really interesting is that 83% of those surveyed felt that if they had excess cash they would only look to deploy it through organic growth or reducing debt as opposed to making acquisitions and growing their company more aggressively. It all gets back to that point of uncertainty in the global economy. Even 64% of the respondents felt that in the next 12 months they were really just looking to sustain stability or survive. It's that cautious, fragile uncertainty seems to be what's resonating with executives.
Watch a video interview with Roth at www.globest.com/Howard-Roth-Video
How is due diligence changing in this economy?
One change in post-crisis CMBS underwriting is that B-piece buyers are reading due diligence reports. Environmental issues create costs for borrowers that can reduce their ability to repay a loan, so it needs to be quantified before loan issuance. The crisis made this potential a reality. This has forced B-piece buyers to become much more granular in their review of due diligence reports. B-piece buyers also learned that environmental or physical issues may provide grounds to have a loan removed from a pool. We have seen that CMBS loans on assets that are unencumbered often have physical needs issues that require higher reserves than typical CMBS loans. An example is a family that has owned a property for 40 years and looks to take out some equity with a low leverage CMBS loan. CMBS underwriting standards require that physical components be maintained/updated to a degree that is often not maintained by freehold property owners. As such, environmental issues can be uncovered that the owner was unaware of.
Check out Partner's "Science of Real Estate" blog at www.globest.com/BuildingSciences
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