Looking at the Big Picture

Strategies for the future and lessons learned from the recession fueled a lively exchange among REIT industry leaders at the National Association of Real Estate Investment Trusts' annual convention in New York City.

November 16, 2010
By Paul Rosta, Senior Editor

Strategies for the future and lessons learned from the recession fueled a lively exchange among REIT industry leaders at the National Association of Real Estate Investment Trusts’ annual convention in New York City.

Panel moderator Ron Sturzenegger, managing director & global head of real estate for Bank of America Merrill Lynch, posed a leading question to the panel’s senior statesman, Kimco Corp. executive chairman & co-founder Milton Cooper: Is the crisis over? “The crisis is gone. There’s liquidity, there’s money, there are very few transactions, because there’s very few properties available for sale.”

Colony Financial CEO Richard Saltzman said that the relationship between supply and demand is entering new territory. “While demand has come back somewhat from the ridiculously paltry numbers of 18 months ago, it’s kind of unclear how the demand is going to grow from here. That’s something different that most of us haven’t experienced before,” Saltzman said, referring to his fellow panel members.

Panelists also weighed the likelihood of initial public offerings will add to the number of REITs. Several of the executives pointed out that the private markets will probably be difficult to tap for the next few years. Martin Cicco, managing partner of Evercore Partners, suggested that an IPO is an attractive exit strategy for several companies that are in private hands, naming Equity Office Properties and Archstone as examples. But he also suggested that well-capitalized public companies may snap up some private companies before they can complete the IPO process.
The recession has also taught indelible lessons that could prove valuable in the next cycle. Cicco said that hard economic times have sharpened the distinction between haves and have-notes among REITS.

And it also underscores the primacy of managing capital markets. “If you’re not focused on the long-term and if you don’t have a sustainable balance sheet in a capital intensive business, you can get really screwed,” noted Simon Property Group Inc.’s CEO, David Simon. “The most important thing you can’t lose sight of is how to finance your business.”

Cooper related a lesson learned from Kimco’s branching out beyond the retail sector. “We did very well, but we paid a price in the marketplace, because the marketplace loves simplicity and hates complexity.” Nevertheless, the REIT’s co-founder quickly added, “I couldn’t be happier with my experience.”

Varying perspectives emerged on the next phase of the REIT sector and its challenges. Given the tight purse strings still being held by many banks and other conventional capital sources, Cicco suggested that REITs might themselves step into the gap and become bigger providers of financing. As for investors themselves, Simon expressed concern that many “want to buy the dream rather than buy the results.” And he noted that the retail REIT is aggressively working to close a major gap in the talent pool. “I want the smart leasing people that know how to make a deal and be creative,” he said.