CRE Finance Roundtable: Outlook for 2013

CRE Finance World, Winter 2013

CRE Finance Roundtable: Outlook for 2013 Moderator: Brian P. Lancaster: Brian P. Lancaster Good afternoon and thank you all for participating in the Commercial Co-Head of Structured Transactions, Real Estate Finance Council 2013 Outlook Roundtable. The purpose Analytics, Risk and Strategy Markets of the Roundtable is to get the views and insights for the year ahead RBS from the leading professionals in commercial real estate finance. With me this year, I have Clay Sublett, SVP of Loan Originations of Participants: KeyBank; Nelson Hioe, Managing Partner at Raith Capital Partners; Sam Chandan David Nass, Managing Director, Head of Capital Markets Real President & Chief Economist Estate Finance, UBS; Bill O’Connor, Partner, Thompson & Knight; Chandan Economics Francisco Paez, Director, Metropolitan Life; Bruce Cohen, Senior Partner, Ares Management; and last but not least, Sam Chandan, President & Chief Economist of Chandan Economics and a professor Bruce R. Cohen at the Wharton School of Business. Senior Partner Ares Management LLC Sam let’s start with you. Today the Fed just announced that it will continue its significant bond buying program until unemployment falls to 6.5%, or inflation exceeds 2.5%. For the last couple of years Nelson Hioe now, borrowers have been enjoying record low interest rates. Managing Partner It sounds like 2013 will be no different. How is this impacting Raith Capital Partners commercial real estate, and how is it likely to impact it in 2013? How much of the improvement in capital flows and property values can we attribute to changing fundamentals; how much of it is due to low rates? David Nass Managing Director, Head of Capital Sam Chandan: Markets – Real Estate Finance UBS Securities LLC Conditions in capital markets and in the monetary policy environment are playing a significant role in driving prices and investment flows into commercial real estate. The way in which we see this playing Bill O’Connor out differs significantly across markets and across property types. Partner When we look at secondary and tertiary markets and at relatively Thompson & Knight LLP smaller assets in market segments that by definition are less liquid, markets fundamentals matter more critically to buyers and lenders and the monetary policy distortions are weaker. Because of that we Francisco Paez have not seen the kinds of improvements in prices that we observe Director, Head of CMBS & in the most actively traded primary markets. Now, that is the case International Structured Finance even when we observe that some smaller markets have been more MetLife stable in their underlying cash flow performance. Because these markets are traded more thinly and have longer Clay M. Sublett hold periods, we have a buying strategy that is really more dependent SVP – Loan Originations on the operating performance of the properties themselves. Given KeyBank/Key Corp Real Estate Capital, Inc. the weak underlying economics at the national level, given the uncertainties that we see in terms of how the recovery will progress, spillovers and improvements in pricing have been relatively modest. There is a discount to illiquidity that is the flipside of the primary market low cap rates and narrowing spreads. CRE Finance World Winter 2013 8


CRE Finance World, Winter 2013
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