BY ARTHUR ZACZKIEWICZ, LINDSAY SUCHOW, SUSAN PIPERATO AND NANCY MEYER
PHOTOGRAPHS BY ROY GUMPEL
Although some somber topics were covered at the New York Real Estate Economic Survival Kit Conference, many industry panelists shared ways to remain productive—and some surprising reasons to be optimistic.
With four panels of 22 real estate professionals, the event provided attendees with the opportunity to gain valuable industry knowledge and network with colleagues. Held on June 24th at The New World Stages Theatre in New York City, the conference opened with an encouraging look at the market’s silver lining.
“I think somebody up above just pressed the restart button,” said Michael Katz, co-CEO of Sterling American Property Inc. “Every asset is being reassessed and repaired—stocks, bonds, real estate. Business models, compensation, even your lifestyle is being reassessed.” According to Katz, all these changes could create a new path for the real estate industry, resulting in “one of the greatest buying opportunities” within the next year or two.
Other panelists agree that a back-to-basics approach is necessary for surviving the downturn. Richard LeFrak, chairman and CEO of the LeFrak Organization advised fellow professionals to “equitize your properties properly, pay attention to the liabilities on your balance sheet, and stress your portfolio for the bad times.” LeFrak also added that successful companies will be the ones that simply “paid attention to their capital stack and the fact that money that’s borrowed has to be repaid.”
Although New York’s job loss rates are not as high as the national rate, the Economics Panel felt that the real estate industry will only recover once the job market has improved. Anthony J. LoPinto, CEO of Equinox Partners, a real estate executive search firm, witnessed the drastic drop in job opportunities in 2008. From July to October, the Equinox Select Leaders job site was posting more than 1,000 jobs a month. After October, however, they “were lucky if 25 jobs were posted and that dwindled to almost zero.”
“From a human capital point of view, this is the worst I’ve seen,” said LoPinto, who noticed that many of the individuals searching for jobs were highly qualified. But the Equinox Partners job site recently posted 100 opportunities for the month of June, suggesting that the job market is slowly recovering, or in LoPinto’s words, is being “reset.”
The real estate industry has also been held back by the lack of capital, slow deal flow, and the delay on foreclosures. Panelists were relatively undaunted, however, and felt confident that deal flow will progressively increase within the next 12 to 36 months, especially in quality markets. Also, they predict that financial companies will soon find debt opportunities in the commercial, office, condo, and multi-family divisions of real estate.
But the optimism is tempered with realism, as regional banks postpone foreclosures and hinder profit and loss statements. According to David McLain, principal of Palisades Financial, LLC, the foreclosure process has become uneven, and “the pendulum has swung to favor the buyer.” Add to this congested courts and increased legal fees, and debt markets have a long way to go before their prices stabilize.
“They are aware that the extension strategy is not a cure-all,” said Tammy Heyman, president of Basis Investment Group LLC, though she admits that the lenders continue to “kick the can along.”
Most of all, the financial panelists stressed the fact that although deals are out there, the good ones are harder to find. Avi Banyasz, managing principal at Westbrook Partners, claimed his firm is taking a cautious approach, and although they are “looking to uncover opportunities in the market,” he claimed that the market is “not quite there yet.”
The topic of green construction was eventually broached, but Peter Turchin, executive vice president of CB Richard Ellis, felt that the bad economy has eclipsed the importance of the issue. Turchin said that green building has been placed “on the back burner,” but he also recognized the necessity of the movement. Peter Riguardi, president of Jones Lang LaSalle, and Robert L. Freedman of First Service Williams expressed interest in eventually seeing green construction as a mandated law, rather than an optional alternative.
Meanwhile, the Real Estate Panel also debated whether or not their industry had already hit rock bottom. While some thought that the worst was yet to come, others believe the bad weather has passed, providing the market with a chance to rebuild.
“Probably the most positive comment I’ve heard this month was, ‘You can’t get hurt falling out of the basement window,” said moderator David T. Gockel, president and CEO of Langan Engineering and Environmental Services. “Are we, in fact, in the basement?” he asked.
Paul J. Massey Jr., CEO of Massey Knakal Realty Services, says his company has managed to remain productive despite the unstable economy. In May, Massey Knakal Realty Services signed 25 contracts, and in April, managed to sign 20 more, which Massey said often surprises people. “There is velocity out there, especially in multi-family,” he claimed. Panelists also noticed that the current demand is coming from smaller tenants, and that many tenants from larger corporations are seeking to establish smaller start-ups.
Freedman forecasts a further market decline, however, and worries that the industry will not hit bottom for 12 to 18 more months. “We will accelerate the bottom of what they call pricing discovery when one of the smart money players in this panel buys an asset of note and it will have historic significance,” Freedman prophesized. “We need a few tilt transactions in the capital markets to establish a bottom.”
However, panelist Newmark Knight Frank CEO Barry M. Gosin, believes that the real estate market has already hit its lowest point. “I think prices are pretty well established,” said Gosin. “We’re bumping along the bottom. I don’t think there’s a significant amount of decline left in this market.”
But despite these bleak forecasts, the Real Estate Panel refused to maintain a defeatist attitude towards the industry. “The flood’s not going to happen,” Mark Grinis, a partner at Ernst and Young LLP, assured his peers. “The live-to-fight-another-day is going to be the norm, not the exception.”
