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A publication of
Winter issue 2016 sponsored by
CRE Finance World Winter 2016
17
Lisa Pendergast: You know, Farzana, I think you hit the nail on
the head. There are a variety of reasons why CMBS bond spreads
have widened as much as they have, but one of the key reasons
has to do with liquidity. A key unintended consequence of many
of the regulations issued post the financial crisis is substantially
reduced liquidity for securitized issuers and investors and higher
costs for borrowers.
Straight Talk on the Current State of Core Asset Classes
Lisa Pendergast: Let’s talk multifamily first. Michael, I have to
ask about your recent partnership with Ivanhoe Cambridge to
purchase Peter Cooper Village/Stuyvesant Town. I think it says
a good deal about your views on the prospects for multifamily
longer term. Can you comment please?
Michael Lascher:
The Stuyvesant Town investment was made
through our Core Plus fund and that is a longer-term hold vehicle.
The investment is definitely a reflection of our perspective on
the multifamily business in general and even more specifically
multifamily in New York City where vacancy rates are incredibly
low and there has been virtually no new supply. In addition, there’s
a renewed urbanization trend that
has occurred and more and more
people want to live in city centers
than outside of the city.
There may be some [multifamily]
markets around the country where
we wouldn’t necessarily choose to invest, where there has been
higher levels of new supply or other economic factors at play. But
generally speaking, we have invested very heavily in the multifamily
business over the course of the last two years or so and I think we
own about 50,000 units not including Stuyvesant Town.
Mark Weiss:
We have less multifamily. We do have condos, but
its growing increasingly difficult to buy in New York right now.
Prices have gotten a bit ahead of themselves and I think a lot of
that is due to the availability of international capital. The phrase
“New York real estate is the world’s safety deposit box” is not an
uncommon one these days. Whether it’s the sale of the Waldorf
Astoria or condo sales in New York City, there is Chinese, Middle
Eastern, and Latin American money at play. So, we’re seeing an
enormous amount of equity come in, which is keeping prices very,
very, aggressive. A pop in rates may put a slight damper on pricing.
Already, high-end New York City condos in the plus-$10 million per
unit area are sort of languishing.
You’re seeing an enormous amount of new hotel supply in New
York and I think that’s really having a damper on what’s going on.
You also have currency devaluation; the ruble is down 50%, the
Latin American currencies are down 50%, and the Euro is down
20% going to 25%. The European traveler is having a big impact
on the Times Square hotel market. It will be interesting to see how
this plays out given the combination of all the new and renovated
product coming into the market and currency devaluation. I don’t
think interest rates are going to affect hotels as much, but I think
the currencies will continue to have a real impact. The Euro is under
107 today and it feels like if the Fed raises rates in December, it
could go to parity or below pretty quickly.
Stephanie Petosa: Where else is hotel supply an issue of concern
here in the U.S.?
Mark Weiss:
We own the W Hotel in South Beach and it’s considered
probably one of the top two or three hotels in that market. New
supply is definitely having an impact. And, the same dynamics
related to the European and the Latin American traveler prevail
here as well. We’re taking the proactive approach of going to Latin
America and spending time with travel agents there. We’ve actually
seen our Latin American business
pick up but only because we’ve
made the effort to go down there.
Miami and New York suffer from a
little bit of the same issue.
Stephanie Petosa: Okay Farzana, let’s talk retail. Is your outlook
for retail optimistic or pessimistic? What is your general view on
all things retail?
Farzana Mitchell:
My favorite subject. I believe the retail environment
is best described as stable. It’s so dependent on consumer sentiment
and confidence and GDP and employment growth. We are confident
this year’s sales will be positive for the retail industry. We’re still
seeing a lot of good retail demand in our space. As you know, CBL
is in the middle markets and we are the only game in town in most
cases. If a retailer wants to move to a middle market, they are
oftentimes in a CBL property.
We came out of the recession reasonably well, but not at the same
pace as some of our peers that have grown a little bit faster than
we have. Remember, we are in the middle markets where growth
tends to be more stable and our peaks and valleys shallower.
That’s the good news; we believe that we have preserved our
stability and our cash flow.
A Roundtable: Straight Talk from Industry Leading Borrowers
“Taking all of that together, we feel positively
about the multifamily business generally
and specifically in New York City.”