Wall Street executives talk about the economy at ALIS.
LOS ANGELES—Hotel values are heading down, according to the Wall Street executives at ALIS this week, who say that the public sector is pulling back and that the private sector will follow. The Wall Street Outlook panel included Michael Bluhm, managing director at Morgan Stanley; Jeffrey D. Horowitz, global head of real estate at Bank of America; Christopher J. Jordan, EVP at Wells Fargo; Lawrence Y. Kwon, managing director at Moelis & Co.; and Ben Leahy, managing director at Goldman Sachs.
“One of the things that has us scratching our head is that if the outlook is so great, why is the stock market heading down,” Bluhm questioned on the panel. “Values are coming down. Public investors lead first and private markets tend to follow. REITs are concerned about values compressing, and we are starting to see pull back from investors to wait and see what is going to happen with values.” Leahy added that REITs are short-term focused, and in markets like New York, where the supply has been completely overrun, no one has a catalyst to get in.
The volatility in the stock market was the biggest concern for the panelists, who said that it changes the sentiment in the market and forces investors to rethink strategy. “When you see stocks go down quickly, you have to figure out if you have to get out quickly because the floor is falling out or if it is short term and you wait it out,” said Horowitz.
Although values seem to be heading down for now, all of the panelists were adamant that we weren't headed for another recession. Bluhm said that his company is predicting 1% to 1.5% GDP growth for the next two years, which he says, “certainly means we aren't headed for a recession.” Leahy advised to look to the strength of the consumer. “Look at the consumer and mortgage markets. It doesn't look like we are heading toward a recession.”
Even more, there is still plenty of liquidity in the market. “We aren't seeing a slow down in interest of capital coming out of China,” said Kwon. “They almost brush off the market downturn. They say, well it is going to come back.” The bank market is also relatively liquid, while CMBS hasn't softened its criteria. “The bank market is always the last corner of the capital market to react to changing markets,” said Jordan. “I think the bank market will remain receptive, unless the broader market changes. I think CMBS will stay tough and I think the ratings agency is going to remain tough.”
The panel was clear that there are some economic uncertainties ahead, but that there is room for growth and no recession on the horizon. “In every cycle someone is making money and someone is losing money,” said Kwon. “A downturn is never really going to be neutral. The question is: what do you do in light of uncertainty?”
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Kelsi Maree Borland
