Weekly News & Capital Markets Perspective

This week’s perspective is provided by Mike Sullivan:


Some of the most meaningful and impactful conversations are had over a pint of beer in a corner pub at the end of the work day.  Or perhaps over a glass of iced tea at a favorite lunch spot.  When people are at ease, conversations and ideas freely flow.  Whether it has to do with an item pertinent to my business or a personal fact about someone of which I was unaware, I always learn a few things as a result of a face-to-face meeting.  I had two such occurrences this week.  And upon a bit of reflection, I realized the respective conversations tie together fairly well.  

Over a few beers and a burger the other night with my partner and a few friends from one of our long-standing clients, the conversation over the nearly two hours ranged from specific real estate transactions to The Who (arguably the best pure rock band of all time in my humble opinion) to the City of Cleveland’s woeful history in sports.  But one topic particularly interested me.  My partner recounted a conversation he had had recently about the national unemployment statistics.  The gist of the conversation is that while it is certainly unfortunate that roughly 8% of our country is struggling to find meaningful employment, 92% of the country is working.  They are gainfully employed and positively contributing to the overall stability of our economy.  This simple shift in interpretation reinforced the idea of perspective.  We tend to focus a bit on the negative, don’t we?  Don’t believe me?  Watch the evening news and tell me what you see.  Crime, bad weather, and traffic accidents are the norm.  And we know all too well about wind chill and heat indexes, right?  Do we really have to make ourselves feel worse than what we probably do?  Perhaps a simple shift in focus to the positive aspects of our lives, cities, government, etc. would do us some good.  Perhaps if we saw opportunity instead of obstacles we might achieve greater success.

Which leads me to a lunch I had this week.  Besides learning that my business acquaintance and I attended the same high school and that one of his friends from college is the son of my former boss’ boss, I learned that his company is expanding their acquisition focus.  Historically a grocery-anchored retail strip center investor, they are now seeking value-add, unanchored retail centers.  He said they are interested in creating more value resulting in higher overall returns.  While their approach is not unique to them by any stretch, it does reinforce a larger trend we have witnessed.  Namely, many investors are choosing to view value-add real estate as an opportunity to create greater returns and not an asset class to be avoided.  The Preqin report from March substantiates this.  According to that report, nationally 55% of investors who plan on investing in a real estate fund in 2013 will be looking to add value-add funds to their portfolios.  The number of value-added funds in the market has increased over the last three years.  And smaller, private market companies, such as the one for whom my lunch guest works, are also successfully raising sizable funds to invest in value-add opportunities.  Appetite for higher risk-return profile investments is definitely increasing.

Have a great weekend.  I will be starting mine a bit early over a pint at a cozy corner pub with a few attorneys.  Should be some good conversation . . .
Mike Sullivan

ARTICLES OF INTEREST___________________________

REITs’ Success Will Drive Higher Returns for Private Real Estate
A panel of private-equity CEOs at this week’s Citi Global CEO Conference in Hollywood, FL, agreed that partnerships between public and private players are vital to a healthy and dynamic real estate market, and expect to see more private equity investors step up their game as active buyers as REITs dispose of non-core assets.  Read more…

Banks Edge Back into Investment Property Lending
After tentatively testing the water in 2011, banks increased their overall lending for commercial real estate in 2012 with total CRE loan balances outstanding at year-end up 3% year-over-year. Investment property loans outstanding showed the biggest gain, ending 2012 up 11% from 2011. And multifamily loans outstanding were up 7% year-over-year.  Read more…

“Investor’s Revenge” Depresses CMBS Values, Deutsche Bank Says
Wall Street banks struggled to unload commercial-mortgage bonds last month as $10 billion in new deals swamped investors.

JPMorgan Chase & Co. last week issued securities ranked BBB-, the lowest investment-grade level, to yield 390 basis points more than the benchmark swap rate, according to data compiled by Bloomberg. Wells Fargo & Co. and Royal Bank of Scotland Group Plc sold similar notes paying 300 basis points more than swaps on Jan. 28, the data show. The trend reversed from the prior month when prices climbed as much as 15 percent.  Read more…

Business-Sales Market Rebounds as the Mega Merger Returns
The economic recovery is well on track if the business-sales market is a reliable bellwether.

A raft of recently announced multibillion-dollar M&A deals suggests 2013 could be a bountiful year for the lawyers who advise blue-chip companies.  Read more…


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