GE Real Estate’s Pralle Highlights 24th Annual Cornell Real Estate Conference
On October 5-6, 2006, the 24th Annual Cornell Real Estate Conference was attended by a range of industry executives including members and non-members of the Cornell Real Estate Council, alumni, faculty and current students of the Program in Real Estate. The two-day conference explored new frontiers in US and global real estate investing. Events included an afternoon real estate employer’s showcase and panel discussion targeting current students, talks by key industry leaders, and panel discussions on venturing abroad, energy and niche U.S. markets.
Keynote speaker Michael Pralle, President and CEO of GE Commercial Finance Real Estate, addressed where the U.S. stands in the real estate market cycle compared with other economies. As real estate continues to globalize, opportunities are increasingly located outside the U.S. He cited Asia as a current focus of significant investor attention, and noted that Japan is experiencing its hottest real estate market in the last 20 years.
Cap rate compression is driving U.S. investment abroad. “As cap rates have come down, returns offered by U.S. real estate has come closer to risk-free rates of return, leading investors to look elsewhere for appropriate opportunities” said Pralle. In Asia, and especially Japan, returns available on real estate still provide a healthy premium over the risk-free rate.
Mychele R. Lord, Executive Managing Director of Client Services for Transwestern Commercial Services, was the featured speaker for Friday’s lunch. Lord spoke on current energy issues, and the need to pay much closer attention to this subject in dealings with corporate America and its real estate.
“We are facing serious challenges in the U.S. energy system,” said Lord, adding “our real estate investments are faced with unprecedented and continuing utility and insurance cost increases.”
Because of increased pressure from many energy and productivity angles, there is a growing ‘green movement’ in corporate America. Goldman Sachs is looking at renewable energy, Citigroup has pledged to reduce emission by 10% before 2011, and GE adds ‘green clauses’ in their tenant leases. Companies nationwide are realizing that not only is being ‘green’ the right thing to do, but it can also help the bottom line.
“Cost-benefit studies confirm an upfront cost premium now averaging 2%, with a payback period of two years or less is incurred for a new green building. The real upside is in the ongoing savings recognized by significant reductions in annual operating expenses,” said Lord.
A diverse panel of industry executives discussed venturing abroad for new investments. The dialogue was moderated by Kevin P. Fitzpatrick, President of AIG Global Real Estate Investment Corp. He was joined panelists Zubin Irani, Managing Director for Goldman Sachs International, John T. Kontrabecki, President and CEO of TKG International and David Schaeffer, Managing Director and Head of Citigroup Property Investors, Asia-Pacific.
Investing in real estate abroad requires the ability to look beyond general macro regions and the willingness to focus on specific local conditions, laws, governments, officials, and approval processes. Opportunities abound in Asia, Western Europe, and Central Europe.
In Central Europe, and in Poland specifically, very little infrastructure existed going into the 1990’s. Today, economic growth offers opportunities even without significant population growth. Most growth, specifically in the Warsaw area, is just outside the city limits where investors are poised to serve both the urban core as well as the outlying areas. Recently, Poland has seen increases in values and construction costs. The key local players in the real estate market have significant land inventory, the ability to act quickly, and are careful to time the market and not overbuild. Opportunities exist in introducing new real estate products, including mini storage, commercial condominiums, manufacturing, motorways, retail and warehouses.
A second morning panel brought the audience back to the US with a focus on niche US real estate markets. Richard Saltzman, President of Colony Capital, Richard Baker, President and CEO of National Realty and Development Corp., and Russel Bernard, Managing Director of Westport Capital Partners LLC engaged in a lively and thought provoking exchange that explored opportunites from real estate corporate assets to resort real estate.
The conference concluded with an afternoon panel of deal makers sharing their stories of deals that worked as well as projects that flopped. John Kukral, President of Northwood Investors, Barry DiRaimondo, President of Legacy Partners, and Charles Henry, President of Hotel Capital Advisors, Inc. collectively had been involved in over $42 billion in real estate transactions over their careers, and regaled the audience with insider tales.
The Annual Cornell Real Estate Conference has been sponsored by the Cornell Real Estate Council since its inception. Next year’s 25th Annual Conference will be held in New York City on October 4-5, 2007. Mark your calendars NOW!