ULI Emerging Trends - Oct 28, 2010 - Portland, OR report and commentary

One of the benefits of writing for Sustainable Industries is that I am able to take advantage of complimentary media passes.  I did that at two events in Portland this past week:  EcoDistricts and Emerging Trends.  I'm reporting on the latter below. . .
 

ULI Emerging Trends - Oct 28, 2010 - Portland, OR*
If you didn't make it to ULI Oregon's breakfast Oct 28, 2010 (or the one in your city), you can download Emerging Trends in Real Estate® 2011  by going to the PWC link and giving your contact info.   In the Portland audience, the only person beside myself I recognized as media was Randy Gragg of Portland Monthly.  Seems the DJC, Portland Biz Journal, Portland Tribune and the Oregonian decided to sit this one out this year!

Charles DiRocco of Price Waterhouse Coopers, the keynote speaker who presented the national picture, gave an amazing presentation considering this was a ULI audience.  For a moment I felt like I was back at the EconVergence that social justice groups from around the Portland region had sponsored last year.  With an animated PowerPoint that cleverly illustrated the last couple decades of over-consumption, DiRocco said we saw more, more, more people’s stuff.  Real estate followed same pattern of more, more, more.  Now we are entering the era of less – shrunken industry, lower returns, restrained development prospects, reduced credit availability, etc.  Our problems are much bigger than real estate:  doubts about the US economy; outsized personal debt; high unemployment; the dollar. . . 

Summary: Less space in housing; more intergenerational living, less reliance on cars; office downsizing space per capita.  In the era of less, less becomes more!

But, I was mistaken to think that this was any kind of voluntary simplicity or one-world message. 

“2011 will see us coming off the bottom with improved prospects for all markets and property sectors.  Smart investors who sold near market tops, avoided overleveraging and kept powder dry are extremely well positioned to take advantage of legions of credit-starved competitors who over-borrowed and overpaid.  Now the haves can attract new capital, poach tenants and lure talent away from the have-nots.”

Best Bets for 2011 - more fully explained in the document linked above

Investment 

• Temper expectations
• Lock in leverage if you can
• Provide debt and recap equity
• Focus on global gateways-24 hour markets
• Favor infill over fringe
• Buy or hold REITs
• Buy land
• Exercise caution on distressed loan pools
• Remember patience is a virtue—buyers should have no illusions about rapidly improving revenues and a return to quick flipping.

Property Sectors

• Buy or hold multifamily—it will outperform everything else
• Buy or hold select retail
• Buy or hold 24-hour gateway office
• Buy select hotels
• Buy condos and single-family housing

Development

Take a siesta.  Stay on vacation except for some apartments, the odd warehouse and select build-to-suit office projects

Flight to quality: “If you have a trophy property, lenders will come after you out of the woodwork.  If you have a dog, you get foreclosed.”  Ample availability of equity – investors w/ dry powder have plenty of options; still limited availability of debt.

CMBS redux we think it is going to come back around.  “Real estate needs capital and the Street provides it.”  Re: Wall Street: once they figure out how to navigate regulatory reform, “they’re resilient and will find a way to get their noses under the tent.”

I thought I detected DiRocco hint that we might fight this Wall Street return through strengthening community banks, but he didn't go as far as I do in my SI article Financing the Evolution of the Built Environment.  In fact, he only hinted at a community bank solution and moved on. . .

Markets to Watch

Washington DC leads the market then New York, then San Francisco; Seattle is 5th; Portland does not make the top ten.

Portland Panel - I could not hear well as no one bothered to speak into the mike and acoustics were poor in the Hilton Ballroom

Ken Griggs - CRE

Smaller banks; less gains for the banking industry

 Clyde Holland – Holland Partner Group

Office starts at a 15 yr low, one new building in PDX in the past __ yrs.  But the market comes back faster than you think.  We closed in PDX about 50k sf in downtown market

Focus for last couple years has been on operational excellence; haven’t laid off one person in last two years; 30-40k individuals moved to pdx last year, many w/o a job; one of best educated markets; pdx has one of the most diversified employment bases

 Scott Langley – Ashforth Pacific

Demand for 1.2 M rental units nationally; exciting time for us.  In Portland we’ve got to get over image that we are just a secondary market; inflation is coming back—no doubt about it; interest rates going up; we’ll close the books with $40B; there isn’t enough debt to satisfy the demand; big trend back to downtown; we just went through LEED Platinum in downtown SF.

I asked a couple of ULI Young Leaders from the PSU Real Estate program how they felt about the event.  They said they were encouraged that things sure seemed better than last year.  Last year the trends were very gloomy indeed.

*Presented by ULI Oregon/Washington, Emerging Trends in Real Estate 2011, undertaken jointly by PricewaterhouseCoopers and ULI, provides an outlook on U.S. investment and development trends, real estate finance and capital markets, property sectors, metropolitan areas, and other real estate issues. The report draws on formal and informal surveys of real estate executives, investors, developers, and market experts around the U.S., including survey responses from more than 500 real estate executives and personal interviews with more than 125 industry leaders.