Too Much Capital, Too Few Assets

Too much capital chasing too few assets is compelling some investors to overpay, Ethan Penner contended during the Urban Land Institute's capital markets conference. But the time will come when there are more opportunities than there is cash to pursue them.

June 24, 2011
By Paul Rosta, Senior Editor

Courtesy Flickr Creative Commons user morrissey

The shifting dynamics of real estate finance and investment drew a broad spectrum of views from several top executives at an Urban Land Institute conference in Manhattan.

A lively exchange moderated by Robert Lieber, executive managing director of Island Capital Group, offered insights into topics ranging from distressed assets and equity investment strategies to development. Too much capital chasing too few assets is compelling some investors to overpay, contended Ethan Penner, president of CBRE Capital Partners. In particular, he termed the distressed assets market “a less appealing sector, as an investor, than I thought it might be.”

But that may change. Despite the willingness of many lenders to modify terms up to this point, the largest volume of distressed properties that will come to market is still ahead. Penner summed up his current advice to clients as, “Let the investors that have no patience fight over today’s crumbs. “ Later in the session he predicted, “There’s going to come a time when there are more opportunities than there is cash to cover those opportunities.”

The multi-family sector continues to be a standout among today’s opportunities for Prudential Real Estate Investors, reported CEO J. Allen Smith. Fifteen or so apartment development deals are in PREI’s pipeline, he said, adding that the terms of those deals have shifted somewhat in favor of the company’s joint-venture equity partners.

Ron Sturzenegger, global head of real estate, gaming and lodging at Bank America Merrill Lynch, cited the market’s robust appetite for initial public offerings, but also noted that investors are most interested in well-capitalized IPO candidates. “If you have a $2 billion enterprise today, that could go public easily,” he explained. Investors, he noted, “don’t want to buy micro-cap . . . and make other people a lot of money at a discount to themselves.”

At Dune Real Estate Partners, many of 2011’s most notable opportunities represent a significant departure from last year, said Cia Buckley, senior partner. Rather than the debt-focused deals that tended to mark 2010, Dune is often involved in complex transactions that require working with special servicers and borrowers to solve knotty problems.

Although the structures resemble debt deals in some respects, she explained, “They’re really equity deals with restructuring.”