24th Annual Cornell Real Estate Conference
Attended by Cornell Real Estate Council members, alumni, faculty and current students of the Program in Real Estate, the two-day conference explored new frontiers in global real estate. Events ranged from a real estate employer’s showcase targeting current students to 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 often increasingly located outside the U.S. Asia is now the focus of significant investor attention, and Japan is experiencing a confluence of factors that makes it the hottest real estate market in the last 20 years.
Driving investment abroad is cap rates. “As cap rates have compressed, the cap rate of real estate has gotten closer to the risk free rate” said Pralle. In Asia, and especially Japan, the cap rate still provides a healthy return 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 the current state of energy, and how it factors into corporate America.
“We are facing serious challenges in the U.S. energy system,” said Lord, adding “our real estate investments are being hit with unprecedented utility and insurance cost increases.”
Because of increased pressure from many energy and productivity angles, there is a ‘green movement’ among corporate America. Goldman Sachs is looking at renewable energy, Citigroup pledges 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 premium now averaging 2% with a payback period of two years or less is incurred for a new green building, and the real upside is in the ongoing savings recognized by significant reductions in operating expenses,” said Lord.
A diverse panel of industry executives led the discussion of venturing abroad. The dialogue was moderated by Kevin P. Fitzpatrick, President of AIG Global Real Estate Investment Corp, and he was joined panelists Zubin Irani, Managing Director for Goldman Sachs, 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 need 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 even 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.
The Cornell Real Estate Conference is sponsored by the Cornell Real Estate Council. Next year’s conference is planned for New York City.