Category Archive for: ‘Networking Meetings’

  • Sunrise on Chattahoochee River, Atlanta

    What to Expect in 2013

    One lesson I took away from Microeconomics is that when you are presented with a tremendous amount of information you should take your time, absorb it, and then repackage it and then you will truly retain it. In that vein, I wanted to take a little time to let the flood of information from the Morris Manning event on Thursday October 4th sink in before I shared it with you.

    What follows is the series of notes I took in the Morris, Manning & Martin/France Media event on What to Expect in 2013. It was basically 6 panels that related to all things CRE in the southeast. I think it’s a testament to MMM that most of the heavy-hitters in Atlanta CRE were either in attendance or actually on one of the panels.

    As a note, my favorite panels were the first (State of the Market) and last (Development) panels. Be sure to pay special attention to Dr. Linneman’s comments in the first section. He was very good. Also, I put some disclaimer language at the bottom to delineate that none of these opinions have anything to do with MMM or France Media.

    Sunrise on Chattahoochee River, Atlanta

    A new dawn in Atlanta is just around the corner

    State of the Market: Where are we in the Cycle?

    Dean Adler (CEO/Founder Lubert-Adler Group) – Biggest single risk in the CRE business is interest rate volatility. The thirst for yield has pushed yields down. Investments are being made because rates are cheap. Real estate still has the same amount of risks and obstacles as ever, but adding IR volatility to the equation is increasing risk. Always asking the question of what type of debt to place on property depending on disposition strategy. As loan sale market winds down, buyers now have the opportunity to buy properties that have had no investments dollars or cap ex for 4 years (zombie assets). Real estate is really back to local execution and returns are going to be made through execution. Why would you go to a closing dinner when you buy something? Operate it, sell it, then celebrate it. In retail, there are winners and losers today. Unlike the past, when A, B, and C centers will all survive. C now has huge risk. There are strong submarkets and “gateway” submarkets in every major metro in the country.

    Larry Gellerstedt (CEO Cousins Properties) – Doesn’t think the election is having much of an effect on either investors or customers other than the fact that it feels like everyone is tapping the brakes. Very attractive market for sellers. Taking advantages of a good market so they can redeploy capital elsewhere. Our expertise should be picking assets and knowing how to operate those assets. We get caught up in proforma analysis and manipulating yield (“pencil whipping”). New development is going to be a much smaller part of the sector as a percentage and even apartments will cycle back down. Development opportunities are very geographically focused and urban mixed-use is very attractive.  Generally sellers of suburban office and generally buyers of urban office. Urban play is more appealing and is driven by demographic trends. “Like fish, we will eat until we blow up.” So when the market comes back, products get hot, and everyone is pitching their deal, we will overbuild. It will happen again. “The economy is better than most people think it is. “

    Mark Grinis (Head of RE North America E&Y) – As a service provider, only the new tax law is effecting their business from a governmental perspective. In isolation, our asset classes look like there is a mismatch for allocating capital. Distress has been redefined in this cycle. Europe is that part of the market that is suffering the most. Asia is having annual growth around 5 to 6%. us is still the engine of the global market place and will continue to be as such. You cannot have one particular strategy and say “I am going to do this one thing.”

    Tom Roberts (Head RE Investments Cole) – Election will have very little effect on Cole’s business, but they are vulnerable to the Fed raising rates. Very conservative investment strategy and generally 45 to 50% LTV. Investors are looking for monthly dividends. If they can make 20% on appreciation of that, home run. One way to deal with downsizing tenants is cutting the box into a smaller box and renting the remainder. Always want to be aware of concentration risk, to Dean’s comments about stronger or gateway submarkets in every major metro.

    Peter Linneman (Linneman Associates) – Real GDP, since 1970, has continued along the same trend line until 2008. GDP has not “bounced back” and is, in fact, falling farther behind. The between “where we should be”  and “where we are” is $2.5 Trillion (US GDP is $15 Trillion). We are growing well below our long term historical growth rate.

    Since the bottom of the recession, we have added 4.2 Million jobs, but we have lost 9 Million. Atlanta has been one of the slowest MSAa to recover, but has picked up speed over the last 6 months (more than any other major metro in the US).

    Retail sales have recovered in spots. Manufacturing has recovered to a degree. US exports have never been higher in American history (in real terms). Corporate profits are at all time highs, but have dipped in the last quarter. Productivity growth is growing at about 20% of its normal growth rate. Commercial construction is at its all time lowest rate, since ’63, with most of it in Texas, NYC, and DC.

    Monetary base: In the last 50 years, grew by $600 Billion. At QE1, it grew by $1 Trillion. QE2 it grew another $1 Trillion. QE3 is going to grow it by AT LEAST another $1 Trillion.  “The Fed’s policy is destroying the economy is two ways: 1) No one has ever seen this investment landscape. 2) money is being created like never before.”

    “When people are in a situation they have  never seen before, they do less. When government is in a situation they have never seen before, they do more.”

    “If you don’t need money, you can borrow a bunch of it at minuscule rates.”

    Loan volume in CRE has slightly ticked up over the last quarter, all due to multifamily. You are going to have to depend on not much debt being available outside of multifamily. Don’t count on debt. Count on equity as your salvation.

    Debt: Who is getting money and why?

    Michael Hartman (Managing Director Reznick Capital Markets) – Moderator

    Paige Hood (MD Prudential Mortgage) – Most mortgage companies are looking at stabilized acquisitions deals. Pru will look at ground up development, but there needs to be a proven demand for demand. Multifamily has proven demand and Pru will look at construction-perm debt on deal by deal basis. Focused on primary markets. Deals are be underwritten on untrended rents and expenses that are justifiable. Looking for 8% debt yield on MF.

    Kurt Schwarz (Client Executive JPMorgan Chase) – At the very least, assets are beginning to trade. Top located assets are going to be rewarded on the valuation side with lenders. Credit decisions are being driven be equal part optimism and pessimism. When it come to recourse, guarantors need to show liquidity much more than simple net worth. Bankers do value the cross-sold products and want the treasury management

    Matt Donnelly (SVP Cole RE) – Debt structure depends almost completely on investment strategy. Projects with lease up will go to local commercial banks and keep on floating debt to allow for flexibility in refinance. Larger, more leased properties will go to the LifeCos on a longer term. Investors are a fixed income play allocated to CRE. They look for stable investments and that means core, long-term investments.

    Dave Gahagan (SVP Walker Dunlop) – All underwriting depends on property type. Agencies will go to 80% LTV governed by 1.25x DSCR. Somewhere around 3.75% for a 10-year rate. CMBS spreads have come in dramatically over the past 45 days and p[ricing is landing in the 4.5% range. LifeCos are a little more selective of properties, but will lend around 3.75% on floor rates. Level of due diligence done on sponsors is significantly higher than 5 years ago. Sponsor quality is high on everyone’s list. How are your other assets performing? Where will our sponsor be when the deal drops?

    Joel Stephens (MD Regions) – Rally in CMBS has allowed almost all property types to obtain debt finance. MF is leading the pack and continues to go to agencies and LifeCos. Commercial properties in gateway cities and going more toward LifeCos. CMBS looks close to $50 Billion for this year. 20% of CMBS is hospitality and 33% is retail (down from 50% at peak). Retail continues to be a challenge for debt financing, but trophy and grocery-anchored can get debt placed.

    Capital – Where is it being invested? What markets and asset classes?

    Chris Marshall (MD JLL) – Moderator.

    Neill Faucett (Principal Lubert-Adler) – Invest through local operating partners. If you can maximize current yield, you can take some pressure off the exit strategy. Will consider development, but it has to be very deal specific.
    Atlanta lags behind its competitors in terms of jobs regained. Investment thesis shifts to discount to replacement cost.

    Will McIntosh (Head of Research USAA RE) – Generally, investors are conservative capital looking for core and core-plus returns. Top markets are gateway markets, but they are looking at secondary markets (especially for industrial). Looking for growth in employment and population where it is available and while it isn’t abundant, there is some. Atlanta is still on the institutional radar, but investors need to find deals that make sense. People are focusing on economies that are focused on tech, energy, or medicine.

    Tom Coakley (Director MetLife) – Met has roughly $7 Billion out in debt and almost all of it was in gateway markets. Invests for general account and doesn’t have interest in venturing out on risk spectrum. Atlanta is an opportunistic market.

     Loretta Cockrum (CEO Foram Group) – Diversification is an absolute mandate for clients because all are from outside of the U.S. substantial amount of capital is coming from outside of the country and all of the gateway cities are experiencing that same trend. With no natural barriers, there is nothing to stop people from moving out. With 60 year investment horizons, you need to look at where the long term value will hold.

    Chip Davidson (CEO Brookdale Group) – Had success in Dallas and in Texas because of the demand driver of the energy industry. Primary investment target is suburban office with identifiable demand drivers. Looking primarily for value-add assets. Investors have become considerably more cautious and more informed. Can’t count on cap rate compression in a couple years because the fed will adjust 10-year rates. Atlanta has become a big city with a great airport. Public schools is a big problem and will not attract corporate relocations. Tech and energy are the main demand drivers in larger markets and Atlanta is behind other markets in those games.

    To Fund or Not to Fund? And What to do when you do.

    Brad Lenox (Morris, Manning, & Martin) – Moderator

    Thomas Boytinck (Founder Allegro Advisors) – 600 funds in the market right now. The big guys are taking maybe 80% of the available capital. When you start a fund, you are becoming an investment manager. You are going to be judged against Fidelity. Track record has become more and more of a focus. Take on a full time staff member whose sole responsibility is raising debt and equity capital.

    Mit Shah (Principal Noble Investment Group) – There is nothing more frustrating than finding opportunities and then having to patch together capital. shifting from a deal by deal promote to a fund level promote, hasn’t made investors shy away in the past. Today, finding investors at the fund level has become much more of a challenge. Blackstone has become the index for the private CRE investor industry. There has become a hard hurdle you must hit in order to get to the preferred return.

    Amachie Ackah (MP Argosy Capital) – There is capital for individual deals. You might be better off doing deal by deal raising right now because of the scarcity of fund-level capital.  Most first time funds lose money.

    Pike Aloian (Partner Almanac Realty Advisors) – Fund structure can provide speed. If the marketplace is dynamic, you may need speed to close. Raising capital deal by deal is very time consuming. Deal by deal is the best way to structure the deal currently. Trying to put together programmatic JV with institutional capital is another way to slice it but funding is not guaranteed. Limited partners are concerned with governance, reporting, and stability.

    Michael Reiter (SVP American Realty Capital) – Capital is predominantly raised through the independent broker-dealer channels.  Investors look at team, theme, and track record.

    Real Estate Tax: Facing the Fiscal Cliff

    Michael Frankel (Global Head RE Tax E&Y) – Moderator

    Chuck Beaudrot (Partner Morris, Manning) – We have 3 types of federal income tax on our income. If we head into a higher tax environment, the ability to defer and transfer tax burden becomes paramount. Basing selling decisions on the tax benefits is a distorted economic activity.

    Robert Rozen (Partner E&Y) – Powerpoint = The Fiscal Cliff. This year we have a deficit of $1.2 Trillion. Beware of Buch tax cuts that are going to cease in Jan 2013. Accelerated depreciation, carried interest, and 1031 exchanges will all be affected.

    Ricky Novak (President Strategic 1031 XC Advisors) – People are beginning to plan for being forced to become active investors vs passive investors. Many clients are attempting to close this year due to the uncertainty of next year. They will be sitting on that liquidity until the dust settles and they can decide how to deploy it.

    Development: What? Where? By Whom?

    Mike McDonald (MD Eastdil Secured) – Moderator

    Reid Freeman (President Regent Partners) -Underwrote to 9.8% constant on Sovereign. Had to allocate between office and condos. when construction started, LIBOR was at 5%. Currently developing hospitality project in Charleston. 4.5 acres with 200 unit apartment project and 2.3 acres on upper King Street. 304 room hotel with 30k sf retail/office. Leveraged IRR at 60% LTC is 24%. Partnered with Bay North from Boston.

    Charlie Tickle (CEO Daniel Corp) – Daniel came to Atlanta about 10 years ago. Decided to partner with Selig and started to assemble large portfolio and decided Midtown was the market of choice. Multifamily was underwritten to 7.5% development constant. Hotel and office were underwritten separately and hotel underwrites better today. Reynolds Plantation is a long term investment. Probably going to add 100 rooms to Ritz Carlton. Potential for seniors housing and multifamily and golf amenity.

    Chad Weaver  (VP Camden) – Great time to be in the apartment business. Mid 2010, finally saw improving occupancy and rent and therefore began to start developing. Leasing has been around 50 units per month and rents have been 10% better than proforma. People are, perhaps, finally getting more comfortable that they are not going to be losing their jobs. So they are moving back into apartments.

    Jay Jacobson (Director Wood Partners) – One of the largest MF developers in the country. Actively developing in 22 markets. Currently building 4,000 – 5,000 units. Best apartment development market in career. Will build to a 5 cap if they think they can sell to a 3 cap. Equity has been flooding to super core product in urban infill markets.   Everyone seems to be getting filled up with MF deals. May hit 220k units in starts this year.

    Jim Jacoby (CEO Jacoby Development) – Atlantic Station site worked for retail. Leased and sold office at sub-6 cap rate. Always looking for smart growth type projects. Ford Motor Plant and Porsche project are creating hundreds of jobs on the south side. Trying to bring a little gentrification to that area.

    The information presented (above/below) is provided by The Atlanta Property Journal and was taken, in whole or in part, from the October 4, 2012 “What to Expect in 2013?” Commercial Real Estate Development and Finance Conference, sponsored by InterFace Conference Group and Morris, Manning & Martin, LLP (“MMM”).  The above is general information and not intended to constitute legal advice.  Any opinion expressed at the conference by a speaker is solely the opinion of the individual and may not reflect the opinion(s) of MMM, its individual attorneys, personnel or the opinions of MMM clients.  It should not be distributed or repurposed without the approval of MMM by contacting

  • Networking Notes: Office Acquisitions

    Since I have committed to writing a book about careers in CRE, I have started to work pointed research questions into my networking meetings.

    Other authors may call these research interviews, but I prefer to think of them as just well-directed questions between friends.


    So, from time to time, I will post these interviews on here for your reference. I will be keeping the interviewee confidential unless he or she specifically requests otherwise.

    Check back daily to see the updates.


    Today’s meeting was with a senior officer with a local office acquisitions firm. His responses are below.

    Three crucial characteristics to possess in order to be successful in CRE are: Work Ethic, A Small Ego, and Vision (with Luck).

    The best learning and training grounds for CRE are: anywhere that allows you to run numbers and do analytical work and anywhere you can find a good mentor. Work-outs are great experience.

    Generalists can be successful in our business, but focus is always better.

    Three things that the best in office acquisitions do that no one else does: Work with speed, make the sell easy for the seller, and execute with “laser” focus.

    The one habit young people should pick up in their career: hard work.

    The people you respect the most are: well-liked, well-respected, disciplined in the buy AND the sell, and are understated.

    A word of caution to beginners: be patient! Have high career expectations, but don’t set them to high too soon.

    A great book to read for CRE pros: Good to Great by Jim Collins.

    Favorite part of the CRE business: the people and the fact that I can get out of the office and see property.


    – Duke


  • Questions

    When I graduated from college, my dean said that “a good question is an opened door and a good answer is a closed door.” He then charged us with opening more doors than we closed and challenging our assumptions about business and relationships.

    To that end, I am always thirsty for great questions and the insight they provide into the answerer.

    I believe I may have stumbled into one of those questions.

    For the past six months or so I have been networking relentlessly in order to find my next full time position. My meetings have been a combination of follow-up meetings with previous contacts and first-time introductions to new contacts.

    With the follow-ups, it is always: How have you been? How is the fam? Is business any better this year? Seeing any trends of note? Blah, blah, blah. Just the typical catch-up banter that is necessary to refresh people and to maintain contact with good folks. It is pleasant and I genuinely care about the answers, but it isn’t particularly challenging or thoughtful conversation.

    With the new guys, it typically goes: This is who I am, who are you? This is what I do, what do you do? Can I help you or introduce you to anyone? Blah, blah, blah. Again, interesting and pleasant, but not challenging.

    So, that is why I try and end all of my conversations with: Tell me the three people in our industry you respect most?

    This question acccomplishes three things:

    1. It makes him or her think in a meaningful way. You can’t just go through the motions and word-vomit your way through a question that ranks all of your contacts. You have to think hard about who has your respect and why.

    2. It gives me a great list of people to reach out to in my networking. I am not trying to meet the richest people in my business, nor am I aiming at the most successful. I want to meet the people that have garnered the most respect. Those are the people that I will try to emulate over the course of my career. If I do that, the money and success will take care of themselves.

    3. It tells me about the answerer’s values. When they tell me who they respect, they always tell me why. I always get reasons for the list I have been given. “I respect her for Reason A” or “He is the best at Skill B.” This shows me what people respect in the men and women they do business with. Think about how valuable that information is!

    With that single question, I now have a target to aim at in order to garner respect from my peers, I have living examples to learn from, and I have challenged a colleague to think deeply rather than just regurgitating a rehearsed answer.

    It is a great question. I’m pretty sure I heard it on a book on CD or something. I certainly  didn’t come up with it myself, but I was listening for a good question and I think you should be as well.

    Feel free to use the question for yourself and be sure to listen carefully to the responses (Write them down!). You will start to see the astounding value and utility of the right questions. They will teach you more about your peers and yourself than any other instrument I know of.

    So, here’s hoping you find the best questions to ask and have more opened doors than closed doors in your career!

    – Duke

  • Views From the Top

    In case you didn’t attend the “Views From the Top” event on Tuesday (sponsored by REIAC and GSU Real Estate Alums), here are my notes:

    Mitchell Brannen received the Georgia State Distinguished Alumni award from the director of the department at GSU. Any of you who know Mitchell know that he is highly deserving of the recognition and is just a great man in our business. So, congrats again to Mitchell.

    The next act was Dr. Rajeev Dhawan of G State to give an economic forecast.

    For anyone unfamiliar with these types of presentations, economists are somewhat infamous for having dry material and presentation and relying too much on data a graphs. I thought Dr. Dhawan, however, presented very well. He had enough good information and data to validate his claims, but didn’t glue himself to a podium and and stare at his notes for 30 minutes.

    A few highlights from his comments:

    You should care about the turmoil in Egypt. Ignoring the humanitarian and philosophical reasons, you need to understand that Egypt is a crucial ally because of its control of the Suez Canal. 15% of the oil that goes to Europe runs through the Suez. If that transport is disrupted or discontinued, then the turmoil will spread to Europe and subsequently the U.S.

    China is taking a proportionally larger share of the world’s oil even though global demand has remained relatively constant for the least several years. Because this seems to be a continuing trend, plan on $90 per barrel going forward.

    No employer seems to want to be the first to ramp up hiring. everyone is waiting on someone else to take the first move and then others will do so as well.

    Home prices are still 20% above the historic growth rate, but are also 20% below the regression mean (aka, values are still uncertain).

    Keep an eye on US Treasuries because China has historically been our largest buyer of Tbills and they have been decreasing their volume every year for a few years.

    The biggest red flag over the Chinese economy is the fact that 50-60% of their GDP is concentrated in construction. Once that bubble bursts, no one knows how the Chinese economy will respond.

    After Dr. Dhawan, the group got to listen to a group of three panelists about global trends in CRE into and out of Atlanta. The panelists were Ambrish Baisiwala of Portman Holdings, Jorge Fernandez of the Metro Chamber of Commerce, and Greg Michaud of ING Investment Management. The Moderator was Mark Elliot of Troutman.

    Mark asked them a series of questions about business inflow and outflow regarding Atlanta.

    Each had several interesting comments, but I will summarize the most interesting here:

    Ambrish: RE fundamentals are still the same and each company needs to have renewed emphasis on due diligence. Portman tries to JV with a local player for their market knowledge whenever they embark on a new project. Each opportunity is unique and should be treated so. Portman is very comfortable with China (particularly housing) where others have been slightly gun-shy.

    Jorge: Compared with other gateway cities, Atlanta is under-marketed. Europeans tend to like NYC and Chicago, Latin Americans like Miami, and Asians like LA and San Fran. Western Europe and Japan seem to have the most interest in expanding into Atlanta and our main issue in landing new companies is infrastructure.

    Greg: Atlanta is still scary to outsiders because of lackluster job growth numbers. Most people want to have a presence in Atlanta but it tends to fall short in relative comparison to other gateway cities. If you are investing internationally, scale matters. If you have a large sum of cash you will be pushed into office investment for the returns. It may not always be possible to buy and entire building abroad. Some economies lend themselves to condo-style office space. Many Europeans still blame Americans for the global recession due to failures in the CMBS market. So, US CRE investment doesn’t have the luster it once did.

    Overall, I thought this was a worthwhile event and I would go again next year. It was held on the 20th floor of Phipps Tower, which was a little odd considering there was no buildout of any kind in the space. The view was great, but sitting in a cold, dark shell office space talking about Atlanta’s relative value in the CRE world was a tasty piece of irony.

    Enjoy your weekend.


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