Firstly, the mood was more upbeat and optimistic. Most people agree that the past few years were terrible but since the end of last year activity has increased. Nationwide, there is agreement that we have a bifurcated market with quality, institutional grade and trophy properties hitting 5% cap rates. Prices for these properties have returned to previous highs. Meanwhile, everyday buildings that most of us broker are still in the doldrums. In order to capitalize on this divergence investors are focusing on the $1MM to $5MM market where high returns exist.
The focus on the Fall Conference will be on manufacturing. There is a belief that this part of the economy will surge as corporations realize that just-in-time delivery and logistic optimization has failed in recent years. In addition, a lower dollar and the need for job creation will result in more on-shore manufacturing. Lower labor and real estate costs are apparent. If true, it will certainly improve the outlook for B and C class buildings.
Build-to-Suit is the darling of the industry as this has been the only way to finance new development. The main geographical beneficiaries have been the Southeast and Texas as aggressive Economic Development Companies showcase their region’s educated workforce, low cost of operations, limited regulations, and pro-business attitude. Unfortunately, while at the conference, California received the award for the nation’s worst place to do business for the 7th year in a row from CEO Magazine. I found that smaller, well focused regions are better suited to make a strong presentation to attract business
Major developers and investors are still focusing most of their energy on managing and improving their existing portfolio. But a few developers are starting to build on already owned land. Others are considering spec development in selected markets where they perceive a shortage in certain product categories. Investors are beginning to re-examine the marketplace for purchasing. Overall, land is still out of favor.
Educational sessions highlighted the global strengths of the United States and our resurgence going forward. There was a lot of discussion of discounted note sales as one specialized way to get high returns and control of assets. However, this being a relationship business with lenders means that only a relative few will be able to succeed in this tightly controlled area. In addition, many wide held beliefs were dispelled. For instance, a commercial real estate meltdown is overblown as is the fear of runaway inflation. Extremely detailed presentaions were made to support these positions.
All educational sessions were of a particularly high level. The venue was extremely well planned to provide the maximum amount of time for socializing with broker and developer counterparts from around the US and several other foreign countries. The SIOR conference continues to show the importance of friendships and the exchange of market knowledge that can only be found in this personal setting. I’ll provide more details in future posts.