Three CRE Executives. Three Vastly Different Views of CRE

The question people in CRE would love an absolute answer: where are the markets in the cycle now/? It’s hard to tell when Federal Reserve executives have bounced back and forth enough to seem like a game of badminton where officials have lost track of the score.

Here are three views from different people in commercial real estate. Who’s right? Wait for the end.

CNBC interviewed Empire State Realty Trust Chair and CEO Anthony Malkin. The company, which owns the Empire State Building and other commercial properties in New York City, is a mover, shaker, and leader.

“We’re not worried, we’re hungry,” Malkin said, adding that the capital markets had let companies run too long with lots of debt at low floating interest rates and values backed by low cap rates. “So, we see conditions more like ‘89 through ‘92 than the Great Financial Crisis and a generational opportunity to participate through acquisitions. And we’re well-positioned to take advantage.”

“We bought a bunch of residential, we bought some retail in Brooklyn,” Malkin added. “We love New York City. We’re so pleased that we are here. We do see opportunity with office, retail, and residential. The office requires a lot of adjustment because it’s very capital intensive. We’re positioned to take advantage of the opportunity. We have been patient and opportunistic. We’ll continue to be so. That said, we’ve been approached by a lot of capital partners who are much more interested in sort of a decade-long view. They’re interested in multiples of invested capital and not internal rate of return.”

“There’s bad news coming, but it’s the aftermath of the shipwreck that’s already happened,” said Kathleen McCarthy, global co-head of real estate at Blackstone, at the recent Milken Institute Global Conference in Beverly Hills, according to Bloomberg. She said that a peak in interest rates — as GlobeSt.com has reported, the one continuous point of the Fed is that the top of rate hikes is already here — with a slowdown in new construction means U.S. CRE markets are bottoming. Blackrock has about $600 billion in property globally.

Starwood Capital Group holds $115 billion under management. Starwood Chairman Barry Sternlicht said at the same conference, “There’s a huge distressed cycle ahead of us.” Ongoing high interest rates, which potentially might not get cut this year, have left CRE loan portfolios underwater. Not that Sternlicht says investment is out of the question, but it’s a “block by block” choice of locations and buildings.

Which of the three is right? No one knows. The unfortunate part is that by the time most people agree on clarity, it’s too late to make the big right moves.