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Dec. 5, 2012

Special Report: Top CEOs Discuss the Post-Recession Investment Environment

Courtesy Steve Becker/beckermedia.com

By Michael Ratliff, Associate Editor

New York—The 2012 Global Real Estate Markets Conference hosted by the James A. Graaskamp Center for Real Estate (Wisconsin School of Business) featured a premier keynote panel with some of our industry’s top CEOs. The venue at the main dining room of the New York Stock Exchange was a fitting one given that the main course of conversation was where to invest in the current climate of economic recovery. The overall tone was one of cautious optimism.

“We no longer fear that the light at the end of the tunnel is the train coming towards us,” said Bob Toll, executive chairman, Toll Brothers. “We are out there buying. Almost all of the markets are operating on a normalized basis. Even Vegas, which was seen as a death market, has come back in that it has reset itself.”

Toll added that he has seen a tremendous recovery in residential real estate in 2012, especially since the last six years were akin to “walking across the desert.” Still, Toll pointed out that the global economy is more connected than ever before, meaning no market is an island.

“To think that what goes on in Europe is not going to impact us is just silly. It is acting like an ostrich with its head in the sand. What goes on in Europe, Asia, India, or a little place like Israel—for God’s sake it is half the size of New Jersey and it can blow the whole world up—all has an impact.”

In spite of the even greater success he expected for 2013, Toll still remained concerned over the uncertainty emanating from Washington. He was not alone.

“While our tenants are doing pretty good, and are perhaps ready to expand, they are not hiring new people because they don’t understand the regulatory or tax environment they are working under,” said Ric Clark, CEO of Brookfield Property Partners. “We think that the economy will take off if Congress can get the debt in order. I like to think that at the end of the day the right thing will be done.”

Clark also feels that the United States is almost back to normal, and pointed out that consumer confidence has returned to his mall business, which has seen stores sales increase on a per-square-foot basis for three straight years to a current all time high. His office business is also doing well, with 7 million square feet in leases signed in 2012, the company’s third highest number ever. As far as markets with room for growth, Clark remains bullish on Europe.

“We are more excited about Europe than anywhere else at the moment,” he said. “The condition of the banks and balance sheets are worse there than they are here. They can’t step up, so that is where we step in.”

But Jeff Schwartz, co-founder & chairman, Global Logistics Properties, was not so keen on Europe as far as the logistics asset class is concerned.

“We don’t want to be in Europe simply based on price,” Schwartz said. “Core high-quality Class A assets are very expensive on a risk adjust basis.”

Global Logistics Properties is, however, very optimistic about Brazil. In fact, the company closed a joint venture investment to the tune of $2 billion on Thursday, November 29. Schwartz’s company also remains strong on China. GLP is actually the largest provider of modern logistics space in both China and Japan with over 177 logistics parks in 38 cities. He didn’t seem too concerned over slowing growth in China either.

“It is hard to call 7.7 percent GDP growth year to date falling apart. The rest of the world would die for that. China is still a massive opportunity,” he said, adding that the logistics sector is poised for continued growth thanks to the rise of ecommerce.

Brookfield has been in Brazil for the past 35 years, though Clark says that the company has only “done well in the last 10 years, don’t ask about the first 25.” He attributes the recent success to 50 percent of the population being under 30 years old, which means there is a huge emerging middle class. Other positive attributes of Brazil are political and financial houses that are in good order.

“We are going to invest more in Brazil,” Clark said. “At the moment we only have retail malls and high-rise residential, but we are building our first office there.”

As far as Asia is concerned, Brookfield does plan to enter the market at some point, in spite of the cost of admission being pretty steep. For now they have a few people in China and India doing research. Toll wasn’t revealing whether or not Toll Brothers had any plans for China (they are a public company after all), saying that “We had some involvement looking around, and I don’t want to say anything more than that.”

In the meantime, Toll is happy with how things are looking in Queens, Hoboken, Jersey City and Long Island, which are closer to his roots.

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