This weeks perspective is provided by Mike Sullivan:
I just returned from the Cassidy Turley Leadership Conference held in Carlsbad, California. The format was similar to past conferences with inspirational keynote speakers, educational break-out sessions, practice group roundtables and an awards dinner. And of course the obligatory planned and impromptu cocktails. Let’s face it — most of the real value in these conferences occurs during these social gatherings. However, I found one traditional session to be extremely informative and insightful.
Wednesday afternoon featured a panel of three individuals representing JP Morgan Asset Management, Beacon Capital Partners, Inc. and Boston Properties. Like you, I have attended many events or conferences featuring panel discussions that are less than inspiring due to the topic, participants, moderator, or some combination of all three. This panel discussion was not one of those. In fact, I think it might have been the best panel discussion I have witnessed.
The topic was “Investor View. “ The moderator was one of our company’s preeminent Capital markets members who kept the flow of the panel moving more as a conversation over a beer than a question/answer, question/answer format typical of most panels. From the many humorous comments it was clear that the three panel members knew and respected each other. And the topic was relevant and informative.
The topic focused on the investor view of office investments. Here is what I learned. Some of it might be new news; some of it might be a reinforcement of what we have learned over the past several months:
- Many larger investors are seeking assets, either core or value-add depending on the investor, primarily in stable, Tier-1 markets. They would rather augment holdings in current Tier-1 markets than expand into secondary markets, even where yields might be more attractive
- CBD or urban properties are preferred. Suburban markets, while not necessarily dead, are not as attractive unless surrounded by amenities
- Lower cap rates make sense given the 10-year treasury levels and as such many investors are being aggressive for the core deals
- Markets with predictable job growth are getting most of the attention
- Many investors are paying attention to floor plate sizes and configurations as the amount of space that office tenants need is decreasing. As examples, attorney offices don’t need libraries in light of electronic media and CPA’s and other service industries are pushing employees offsite to client’s spaces. These phenomena mean that certain buildings may be becoming functionally obsolete faster than anticipated.
Investors are increasingly becoming more and more particular when it comes to office investments. There is still a demand, but now more than ever, being in the right place within a desired market is critical.