RECon Special Report: Bernanke, Top REIT CEOs Share Insights
- May 25, 2016
Las Vegas—The economy was on the mind of thousands of real estate professionals at RECon this week, and a former Federal Reserve chairman took the occasion to downplay worries about an imminent downturn. “I don’t see any reason why the odds of a recession are any bigger than usual,” Ben Bernanke told Marcus & Millichap president & CEO Hessam Nadji on Monday afternoon.
Bernanke’s comment emerged at Retail Trends, the annual event hosted by the firm at the Renaissance Hotel in Las Vegas in conjunction with the International Council of Shopping Centers’ spring convention. Bernanke, who chaired the central bank from 2008 to 2014, pointed to continuing expansion in the job market, a gross domestic product that is 10 percent greater than its pre-recession peak. In contrast, Europe’s GDP only recently returned to its pre-recession size. He termed the current economic expansion “a Rodney Dangerfield recovery” that “don’t get no respect.”
That said, Bernanke also cited challenges, such as stagnant productivity and the annual growth of only about 2 percent. “If growth were 3 percent or 4 percent, I’d feel a little better,” he said. Still, the Fed’s former leader is even more concerned about risks from abroad: the impact of a slowdown in China’s growth, the ramifications of the United Kingdom’s potential departure from the euro zone and the effect of the strong dollar, “The world has become so financially integrated, when risk assets fail . . . it washes up on our shore.”
Stressing that his views on interest rates were his own and not those of the Federal Reserve, Bernanke said that some modest increases might be in store. But he quickly added, “The basic facts that have kept rates low are still in place.” Those facts include continued low inflation, a rate of return that he termed “pretty weak” and a low risk premium.
Bernanke’s comments set the stage for a wide-ranging conversation with a trio of leading retail REIT CEOs on trends, challenges and opportunities in the sector.
“We feel we’re in slow-growth mode,” said Kimco Realty Corp. president & CEO Conor Flynn. Once an active merchant builder, the firm now embraces a conservative strategy: only four new projects under way, all build-to-hold, all financed without debt. No less important, all are driven by retailers who are taking a laudably strategic approach to growth. Kimco’s own portfolio has evolved; once about half power centers and half grocery anchored properties, it is now about 50-50.
Geographically, the areas targeted CEOs varies considerably. Weingarten Realty, for example, is focusing on the South and West, noted Andrew Alexander, the firm’s president & CEO. One challenge, he said, is that “Everybody wants to be in the gateway cities, with the same tenants. It’s hard work to find the gems.”
Executives also commented on the stream of information—sometimes accurate, but at other times less so—that shapes impressions of the retail sector. ‘The reality of life is far different from what we read in the papers,” advised Glenn Rufrano, CEO of VEREIT Inc., the net-lease REIT formerly known as American Realty Capital Properties Inc. Since taking the helm in April 2015, Rufrano has revamped the company’s leadership, embarked on a strategic disposition program and engineered a rebranding, among other measures. Most recently, the firm completed a $1 billion capital raise in less than three days. Yet he argued that such successes are often overlooked in media accounts.
Ominous headlines followed the recent bankruptcy filing by Sports Authority, but Flynn speculated that the spaces vacated by the chain may not go begging for long. Big boxes of the kind occupied by Sports Authority are highly coveted these days. “We’re seeing office supply users and the off-price sector gobbling it up,” he reported. A key test, he said, will be the level of demand for the Sports Authority spaces when they are auctioned off.