NEW YORK CITY—They weren't quite wringing their hands but, in a far departure from the usual optimism heard today at most industry events, chief executives who spoke Monday at the annual CRE Finance Council conference sounded several cautionary notes.
“Demand hasn't increased greatly yet there's so much money available today and borrowing standards have been relaxed, so you wonder if there's a danger of overbuilding,” mused Stephen Ross, chairman and founder, Related Cos.
Added Richard LeFrak, chairman and CEO, LeFrak, “Land prices have gone up dramatically and construction prices are rising hard—even though the cost of materials is down—so there's compression of yields.”
In the search for yield, “bank discipline is being eroded,” noted Ross, “so the quality of the projects and even the developers [getting financing] is lower than it was even six months ago.”
However, while an audience member noted a similarity between current conditions and those of the pre-recession economy, panelists weren't quite bleak enough to suggest we're heading for a nose dive yet again.
“Yes there are similarities to 2006 in terms of investor enthusiasm and money is flowing from everywhere,” admitted LeFrak. “But the difference this time is that banks aren't taking the risks, it's falling to private equity, sovereign wealth funds and similar entities that can tolerate it.”
However, he warned, “While it's not the same, we have to walk gingerly now.”
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
