DLA Piper: Public, Private Markets Show Improvement

2010 is expected to provide major shifts in the capital markets, according to experts.

May 4, 2010
By Allison Landa, News Editor

This is poised to be a significant year in private as well as public markets, said panelists at DLA Piper’s Global Real Estate Summit 2010 in the “Seismic Shift Realigns Markets” program. Panelists discussed the U.S. market’s turbulent twists and made predictions for the near to long-term future.

“Fundamentals are still declining, but people are underwriting through that,” said Eastdil Secured, LLC CEO Roy March. “The private markets are definitely indicating improvement (and yet) the public markets are showing a 30 percent premium against the private markets.”

He noted that there is significant interest in real estate, particularly within the equity and debt markets. March estimated that there have been a total of $55 billion of transactions in the public markets.

He also asserted that a relative lack of product is pressing investors to recognize that there is a smaller difference between note value and real estate value – and encouraged them to mentally “compress” that difference.

CBRE Capital Markets President Ethan Penner told the audience that the American financial community was so downtrodden a year ago that any move off of that glum mental framework feels euphoric.

But, he cautioned, dissecting the numbers may dim that euphoria. “The amount of new equity wouldn’t carry the amount of loans in special servicing today,” he said. “It’s not a meaningful raise compared to the dollar’s loss.”

Penner added that today’s “feeding frenzy” is a function of the paltry supply pipeline rather than a tremendous amount of available capital: “Most of the equity’s been wiped out in America, so most of the assets are controlled by the loans or the lender, so it’s forestalled the inevitable recap and coming-to-market of those assets.”

Dune Real Estate Partners CEO Dan Niedich said that not all debt is created equal, just as not all capital structures are created equal. “There’s no question that people are pricing differently, but it depends on the asset,” he said. “If you’re looking at a fully loaded office building encumbered with a stack of debt, you’ll look at it differently than a finished condo.”

Ventas Inc. Chairman, CEO and President Debra Cafaro said her company began getting conservative in 2007, recapitalizing and re-equitizing at the time. Now, she says, times have changed.

“We are starting to invest again,” she said. “We have gotten more constructive, we are investing, and we believe we can make money for investors in the current environment.”