Capital Markets to Remain Rocky

SAN DIEGO—Capital markets aren’t going to settle down any time soon. That was the consensus earlier this month when Urban Land Institute’s San Diego/Tijuana District Council assembled a panel of commercial real estate professionals to discuss – as the program name stated – “Navigating the Unprecedented and Wild Fluctuations in the Capital Markets.”

JLL’s Lynn La Chappelle moderates a ULI discussion on capital markets.

Moderated by JLL managing director Lynn LaChapelle , the program provided insights into what the future may or may not hold. As panelist Leonardo Simpser , managing director of LLJ Ventures and LM Advisors , summarized, “Volatility is here to stay.” The factors stirring capital markets were outlined by SANDAG’s chief economist Marney Cox: wages aren’t growing despite the unemployment rate being down, and consumers aren’t spending but instead saving their money or paying down debt. These conditions are unsettling to the capital markets, as consumer spending is 70% of gross domestic product (GDP). “Capital markets react first to certainty and then uncertainty,” said Cox. Don Ankeny , president and CEO of Westcore Properties says now is the time for his company to be cautious. “We’re trying not to get out over our skis,” he stated. Westcore, as a value-add investor, is currently looking for infill properties where the “value is in the land as much as the real estate.” With little competition due to the barriers to entry, Westcore is currently seeing a 95% occupancy rate average. Alexandria Real Estate Equities’ executive vice president, Dan Ryan , says continuing advances in science are contributing to his company’s current success. “Science doesn’t respond to interest rates or go at the same rate as economic growth,” he said. With so much enthusiasm for life sciences, companies are committing to large real estate deals. Alexandria’s current strategy is to partner with pension funds. “We are a big company and we bring in even bigger companies to help us with our investments,” he said. LaChapelle noted that some clients want to “straddle while others want to get in and out (of an investment) in three years.” Ankeny’s approach is to align Westcore with long-term capital, as many foreign investors are making significant amounts of money and prefer to invest in long-term assets in the US versus investing in their home country. As the ULI San Diego/Tijuana District Council is the only bi-national ULI council, Mexico is always a consideration to the local membership. When asked about the status of commercial real estate in Mexico, Simpser predicted that recent reforms in that country are positive and will result in positive effects in the long-term, adding that there is a lot of competition once a product is built. Cox believes that the future is tied to Mexico as it is with Canada, noting that current government policies haven’t caught up with realities in the market. “The world has changed…we need to be tied together,” he stated. When asked about what signals to look for that the strong U.S. market is going to change, Ankeny looks toward his clients. “An early warning is when our clients start to slow down,” he said, adding “The rate of change is so fast right now we can’t do business like we always have.” For LaChapelle, the future “requires us to be nimble and forward thinking and…taking along-term view our future.” The Urban Land Institute develops leaders in the responsible use of land and promotes creation of sustainable, thriving communities worldwide. ULI has 36,000 members internationally and 675 in the San Diego region. The ULI San Diego/Tijuana District Council facilitates local discussion of public policy issues and best practices related to real estate development, city building and land use