More Upbeat ULI Summit Finds Big Finance Players ‘Back on Offense’

Only a year ago, the atmosphere at the Urban Land Institute’s spring summit in Atlanta was dour, even fearful, recalled the organization's CEO, Patrick Phillips. This week, the ULI's national meeting in Boston revealed an unmistakable change.

Major conferences can be telling barometers of the commercial real estate industry’s mood.  Only a year ago, the atmosphere at the Urban Land Institute’s spring summit in Atlanta was dour, even fearful, recalled Patrick Phillips, the organization’s CEO.  This week, ULI ‘s spring conference in Boston revealed an unmistakable change. “There’s more of a forward-looking attitude and more of an upbeat attitude,” Phillips told CPE Thursday afternoon. “When you look around here in Boston, what you’re seeing are the survivors.”

Those survivors expressed a sense of confidence that the worst of the crisis is finally over. “We’re back from the edge of a cliff,” said ING chairman & CEO Stephen Furnary during a finance and investment panel discussion on Wednesday afternoon. Among other gains, commercial real estate assets will again start to register increases in net operating income, Furnary predicted.

Some financial heavyweights also took the opportunity to alert the assembled real estate professionals that they are back in the game.  Frank Cohen, senior managing director at Blackstone Real Estate Advisors, said during Wednesday’s finance panel that the firm was participating in joint ventures with REITs as well as investing in B-notes and CMBS. “I think we are very much in the mode now of back on offense,” Cohen said. Private equity can have an essential role to play in re-energizing the market. A borrower who needs a loan valued at 100 percent or more of an asset’s value for refinancing may be able to secure a loan for only 70 percent of value.  In those cases, private equity can supply the rest of the capital stack, he explained.

Cohen also predicted that REITs “will be the first to develop because they don’t need the construction loans.” Speaking for one of those REITs, ProLogis CEO Walter Rakowich told the audience that a build-to-suit project provides his company with better returns today than acquisitions. Much of the industrial giant’s development portfolio is outside of the United States as overseas clients expand or upgrade their assets.  However, Rakowich also noted that that development is attractive for ProLogis in part because acquisition is so unattractive: “We’re not seeing terrific buys on the industrial side.”

A sense that the industry’s prospects are improving but mixed also emerged in the economic outlook that preceded Wednesday’s capital markets discussion. The recovery is now spreading from the central part of the country to the Southeast, except for Florida, and the industrial upper Midwest, reported Augustine Faucher, director of macroeconomics for Moody’s  The national unemployment rate will reach an estimated 10.2 percent by the end of the year, although some of the increase will result because formerly discouraged workers will be counted in unemployment figures when they resume the job hunt. Business and professional services will generate most of the job gains.