Country’s top finance, legal, commercial real estate leaders convene in San Diego for annual Lender Conference
SAN DIEGO, Calif. – The potential impact of government default, an improving but uncertain lending market and the globalization of the economy were among the many topics and themes addressed at this year’s Trigild Lender Conference, held recently at the Westin Gaslamp in downtown San Diego.
The three-day event focused on commercial property loan and investment trends and drew 400 participants from around the nation, a 15 percent increase from last year, according to Judy Hoffman, chief operating officer of Trigild.
Robert Guest, the U.S. editor for The Economist, an influential weekly focusing on international politics and business news and Sam Chandan, Ph.D., a respected economist and president of Chandan Economics, examined the state of commercial real estate and overall economic trends at the 13th annual conference.
The event also featured panels and sessions with some of the country’s top finance, legal and commercial real estate leaders.
Overall, the mood of the conference was upbeat but cautious – the commercial lending climate has improved dramatically since the dreary days of the Great Recession, but uncertainty still prevails due to rising interest rates and divisive partisan politics.
According to Chandan, in 2013 commercial property sales were 277 percent higher than they were at the bottom, which was consistent with 2012. Yet the shift of capital from primary to secondary markets is lagging. “Everyone still wants to be in the major markets,” he said. And while banks’ net exposure to multifamily and commercial real estate increased by $18 billion in the second quarter of the year, volatility still exists, Chandan noted. “Things are changing rapidly,” he said. “There is an exaggerated degree of volatility which presents a huge challenge in our ability to move from recovery to expansion. We are at a time of transition and have to be judicious in our choices.”
Looking forward, Chandan said, increases in lending activity call for more precise assessments of risk. Banks do not originate questionable loans at the bottom of the cycle. “We will see challenges emerging from the way we underwrite loans today,” he said. “When we are confident, we take more risks and loans default; when we are conservative they do not.”
Which means another down cycle is certain to emerge. Distress is diminishing for now, but it will be back, experts agreed. For now, “the appetite for commercial real estate lending will continue to grow,” said Keith Honing of AIG Global Investment Corp. “It is full steam ahead with some rough waves.”
Asset Class Overview
Various asset classes were addressed throughout the conference, including multifamily, office, industrial, retail and hotels.
The overall consensus was that while multifamily is the darling of the industry, there is a degree of fear in the retail sector. “The regional mall is a dying asset class,” said Isaac Pesnin of LNR Property, LLC. Due to more online shopping options, “there has been a fundamental change in retail” and the way people shop. In fact, “the internet will eventually grow to 30 percent of retail sales,” said Chris Maling of Colliers International. On a positive note, people still do not typically shop online for groceries, so grocery anchored centers will flourish.
Like multifamily, hotels are on solid footing. “Hotels were the first to fall in the downturn and the first to recover with favorable capital and market driven liquidity,” said John Strauss of Jones Lang LaSalle. Atlas Hospitality Groups’ Alan Reay concurred. “Hotel values are going up, especially in gateway markets such as Boston and San Francisco.”
Meanwhile, in the industrial/office sectors there are many aging properties that will need to be redeveloped. The office sector is also bifurcated with sectors like education and energy booming and industries like finance and insurance lagging. A shift has emerged in this sector, said Honig, with businesses using less space. Companies are focused on cost savings and learning to use space more efficiently.
Washington Infighting Casts a Pall
The acrimony in Washington will continue to impact the overall economy, as the debate over debt ceilings and defaults continues. Guest of The Economist likened the recent crisis in Congress to “wrestling on the edge of a cliff.”
“It’s a good thing for Congress to be dealing with all of the entitlement issues, but wrestling at the edge of the cliff is not the way to do it,” he said.
The solution, he said, should be a careful mix between spending reductions and tax increases. “It’s a long-term project which involves spending restraint and a simplified tax system.”
Guest finds the latest impasse in Congress “staggering.” To mess with the debt ceiling is “very dangerous” and simply not the kind of risk we should be taking, he said. “The global financial architecture is built on the understanding that America does not default – it never has.”
Other issues which continue to plague the U.S. economy include stagnation in job growth, the pension time bubble and overregulation.
Despite its many shortcomings, he praised the U.S. as home to the world’s most dynamic and successful businesses – among them Apple, Exxon, Google, Berkshire Hathaway, Microsoft and Wal-Mart. “An ability to harness new insights and turn them into new products has created the most innovative companies on earth in the U.S.,” Guest said.
Meanwhile, emerging markets like China, India and Brazil are a key to global prosperity, but face many challenges – from water scarcity to overregulation.
This country, he said, is well positioned to take advantage of growth in emerging markets, as immigrants now stay in intimate contact with their native countries. America, he explained, is better connected with immigrants, creating powerful cross-border networks.
“People still think this country is where you can make it, so migrants flock here.” The key, he said, is to recruit the best and the brightest and “focus on skills.”
Headquartered in San Diego with offices throughout the country, Trigild has more than 37 years of property management and fiduciary expertise, with a focus on managing and maximizing value for assets in an array of industries, including commercial real estate, multifamily, hospitality and more. Since its inception, Trigild has developed a full service national operating platform providing institutional quality services to private real estate investors and financial institutions. For information, visit www.trigild.com.