ULI 2010 Fall Meeting: The Industry Up Close
Cornell University Program in Real Estate (PRE) students joined more than 5,000 developers, investors, architects, land planners, and other real estate professionals at the Urban Land Institute’s Fall Meeting and Urban Land Expo in Washington, D.C., Oct. 12 - 15. Packed with vibrant panel discussions, excellent speakers and exhibitors ranging from engineering firms to private equity firms to graduate programs in real estate, the meeting did not disappoint. Meeting highlights included an opening keynote from FDIC chairman Sheila Bair; the release of Emerging Trends in Real Estate 2011, a joint report by ULI and PricewaterhouseCoopers; and a closing keynote by Donald Kohn, vice chairman of the Federal Reserve System from 2006 – 2010. The meeting also provided students the opportunity to meet and network with industry professionals who gave the students an up close and current view of the industry.
During the opening keynote, FDIC chairman Sheila Bair voiced her views on general economic trends and was quite clear about her preference for restructuring loans rather than “dumping” them all on the market in distressed sales toget them “over with.” She clearly stated that the problem with the current system is that servicers are not properly incentivized to restructure the loans with underwater homeowners. Bair stated that new FDIC rules will change the structure of incentives so that the interests of homeowners and servicers are better aligned. She declared that she was entirely confident that the FDIC made the right decision by not liquidating all FDIC managed assets and consequently re-pricing the market to very low real estate levels. Her reasoning was that the people best equipped to maximize value on those underwater assets are the current owners of the assets in conjunction with the lender.
The Emerging Trends in Real Estate 2011 report by ULI and PriceWaterhouseCoopers was presented in a general session of the conference, and the findings demonstrated that certain property segments are on the upswing. “The market is predicting extreme bifurcation as the capital flight to quality creates a greater separation between the trophy and less desirable assets,” said Mitch Roschelle, partner, US real estate advisory practice leader, PwC. “Well-located and well-tenanted properties that can generative strong cash flow over the next several years are exactly what buyers and lenders want, according to survey respondents. As a result, prime apartments and office buildings in gateway cities are generating the most attention from the increasing pent-up sidelined capital.” Due to the “capital flight to quality” the report states that owners are lowering performance expectations and are very conservative on the amount of debt placed on these core assets.
Dr. Donald Kohn, former Federal Reserve Vice Chairman—he stepped down only 5 weeks prior to this address—said, the U.S. economy is in for “a long, slow climb out of a deep hole.” Kohn, indicated that this recovery will be the slowest economic recovery since The Great Depression, and that it will be highlighted by slow growth and low inflation. He also addressed a large number of questions on how tax and regulatory uncertainty will affect the economy. His general consensus was that job growth and business spending will continue to be low until businesses have an idea of how health care reform, taxes, and the development of a long term plan to address the national debt will affect their profitability. Although the outlook does not seem too bright, Kohn is optimistic that the economy will experience growth next year and even more the following year.
One of the most intriguing sessions of the conference featured Cornell alum, and PRE advisory board member, Allen J. Smith, CEO of Prudential Real Estate Investors. Smith was joined by Thomas Toomey, president and CEO of UDR, Inc., Barry Sternlicht, chairman and CEO of Starwood Capital Group, Rong Ren, CEO of Harvest Capital Partners, and the panel was led by Ron Sturzenegger, global head of Real Estate, Gaming and Lodging, Bank of America, Merrill Lynch. The discussion was focused on the current status of the global real estate investment sales, debt and equity markets. The debate was vigorous, and the consensus was that core markets are getting priced very expensively by the market, and the extremely low cost of debt is pushing the pricing even higher. Also discussed by the panel were the current state of the US economy and the effects of government intervention on the domestic investment market. Barry Sternlicht mentioned that for the first time in his 25 years of investing he has to apply a political risk factor for his investments in the United States.
The PRE students learned a great deal in the breakout sessions and many took the opportunity to network with industry professionals at the conference. Richard Weidel, PRE 2011, gained his internship experience this past summer through a contact he met at the ULI fall meeting in San Francisco last year, and many PRE 2012 students looked to follow his tracks this year. Jermaine Gause, PRE 2012, commented, “Not only did the ULI Fall Meeting provide me the opportunity to increase my awareness of current trends in the hospitality real estate industry, it also afforded me the opportunity to network and build relationships with industry professionals.” The experience of learning from industry leaders and interacting with professionals in the trenches provided the PRE students with an unforgettable experience.