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Uncertainty Sets the Tone at the 18 Annual Trigild Lender Conference
Compelling speakers, panelists provide insight on issues related to commercial real estate, investment trends and the overall economy

 

SAN DIEGO – Economic uncertainty, globalization, the high cost of housing and retail woes were among the many weighty issues addressed at the 18th annual Trigild Lender Conference, held last week at the Hard Rock Hotel in downtown San Diego.

The three-day event drew participants from around the nation, according to Judy Hoffman, conference founder and president of Trigild, a San Diego-based real estate services firm.

A slate of compelling panelists and speakers – including futurist Peter Leyden of Reinvent; noted economist Sam Chandan, Ph.D.; and Ten-X’s Peter Muoio, Ph.D. – provided timely insight on complex issues related to commercial real estate, investment trends and the overall economy.

 

Looking Forward
Keynote speaker Peter Leyden founder and CEO of Reinvent and a leading expert on new technologies and future trends, addressed the “Our Age of Global Transformation,” distilling the essence of key technology developments and major trends restructuring the world and unfolding in the decades ahead.

He delivered an optimistic view of the future, discussing how digitalization and globalization are transforming the world and what to expect in the years to come. “We are in the midst of a historic global transformation and now in the adoption phase of a paradigm shift,” Leyden said. “We are evolving from an analog to a digital age – and transitioning into a borderless world.”

One of the biggest changes to emerge in this new age: artificial intelligence (AI). “AI and advanced robotics are now competing with humans,” Leyden said. “By 2030, 30 percent of U.S. jobs will be impacted by automation – white collar as well as blue collar.” On the upside, he said, “Robots will not replace, but will augment humans.”

Leyden noted paradigm shifts have necessitated a dramatic reinvention of systems which could impact the real estate industries. As an example, he said, entities “like malls – created in one era – have to be repurposed for another.”

Another issue which will have a huge impact on real estate: climate change. The threat of “climate change will necessitate a massive infrastructure rebuild – with new urban footprints, more efficient housing and sustainable agriculture,” he said.

The biggest challenge? “Housing. We need to repurpose land and build more affordable housing.”

 

Uncertainties Prevail
Peter Muoio, executive vice president at Ten-X, presented Economic Cycle and Commercial Real Estate Cycle, Inexorably Connected or on Divergent Paths?” examining the outlook for both the economic and commercial real estate cycles, touching on all asset classes: hotel, industrial, office and apartment.

“We are in the second longest economic expansion in history, and job growth is humming along,” he said. “A tight labor market is starting to drive stronger wage gains.”

While the economy is robust, potential landmines of a geopolitical nature – including a looming trade war and EU chaos – are precipitating uncertainty. On the commercial real estate front, Muoio cautioned there are signals we are nearing the end of the CRE cycle. “The economy is strong, demand is weakening and supply is increasing in most markets – feeding into the late cycle zeitgeist of commercial real estate,” Muoio said. “While job growth persists, technology and shrinking spaces are limiting demand for office space.” As a result, he said, office fundamentals are weak despite a roaring economy.

Further fueling uncertainty about the CRE markets: an increase in interest rates, a slow rise in prices and tight cap rates.

On a positive note, the labor market and consumer spending continue to drive the overall economy. “The labor markets remain a key engine of the expansion,” he said. ”A tight labor market is starting to drive stronger wage gains.”

Muoio touched on various trends which are impacting all CRE sectors, highlights include:

  • The housing market has lost momentum: tight inventory levels continue to weigh on existing sales and are driving prices higher, eroding affordability.
  • On the multifamily front: demand is cooling, but rents continue to soar. Increased development is causing a rise in vacancies.
  • Initial sign of millennials leaving home represents an untapped demand source
  • Office fundamentals are worsening. Demand is constrained by a tight labor market and shrinking space needs. Modern floor plans are trending toward condensed desk layouts and less onsite storage – decreasing space per worker.
  • Formerly strong office markets now face increased supply.
  • The brick and mortar retail segment continues to be hurt by the accelerating growth of e-commerce and shift in spending experiences.
  • Retail is now often a redevelopment play.
  • Industrial remains the golden child with new demand drivers including e-commerce, cloud computing and legalized cannabis.
  • Hospitality fundamentals remain healthy, as growing demand mitigates the effects of new supply nationally.
  • Airbnb and other homesharing sites remain a threat to the hospitality industry – potentially impacting implicit supply, pricing power and business travel.

 

The Grand Plateau
Noted economist Sam Chandan, Ph.D, The Larry & Klara Silverstein chair in real estate development and investment and associate dean for the NYU SPS Schack Institute of Real Estate, provided keen insight and erudite commentary for the tenth consecutive year at the conference. In his much-anticipated annual presentation, Chandan focused on “The Grand Plateau,” continuing last year’s theme of uncertainty about the economy and the state of commercial real estate. “Things are going well, but it is unclear how long they will continue to do so,” he said. “Many different things could trigger the next inflection,” he said, but “problems happen when complacency sets in, and people take more risks.”

Ultimately, he said, commercial real estate will not be the cause of the next turn – but will certainly share in the pain.

Chandan echoed Muoio’s sentiments about shifting space patterns. “There are fundamental shifts in how we use space, which has huge implications for CRE.” Another continuing challenge for CRE, said Chandan, is “chronic under investment in urban infrastructure, such as education, transportation and other assets.”

It is important now, he said, to understand to “position ourselves for the next downturn. One thing is inevitable, he said. When the next downturn comes, “the finger will be pointed at the Federal Reserve” over interest rate miscalculations.

He noted the titles of his past Trigild presentations over years – among them from The Hunt for Liquidity, 2011; From Expansion to Recovery, 2013; An Appetite for Risk, 2014; Signs of the Acopolypse, 2016; and “An Unexpected Journey, 2017”  – are especially telling.

Overall, he said, “fundamentals in near term improvement are masking a long-term shift. We are in the second largest expansion in history. A downturn is inevitable.”

He also said the downturn should be milder since we’re not in an era of “run-away appreciation” that helped contribute to the previous crash.

 

Make Way for Millennials
On one thing Lydon, Chandan and Muoio all agreed, the key to our future lies with millennials, about whom there are many misconceptions.

“People tend to think of millennials as homogeneous, but they have extraordinary diversity,” Chandan said.

And contrary to popular belief, they will not always be urbanites. “Millennials will eventually marry and have children,” Chandan added. “There is a lag in the life cycle. But millennials will not always be 22 years old, they will move to the suburbs and are starting to do so,” he pointed out. And there is one trigger that makes all the difference in the world for real estate. “The moment you have a child, utility functions shift, which means moving to suburbia – this is what  older millennials are doing.”

On a much broader level, said Leyden, the millennial generation will drive the next century.

“Millennials are the biggest generation in history – they are tech savvy, collaborative, civic minded, racially diverse, global and green,” he said. They are poised to “drive the economy and society – reshaping America this century. Boomers are fading off and the millennials are just ramping up.”

 

About Trigild
Headquartered in San Diego, Trigild is a real estate service company with 40 years of 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.

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