by Gleb Lerman, The Affordable Oracle
Yesterday I had the pleasure of attending ULI’s Private Equity Symposium. The event was a 5 person panel which included GP’s, LP’s and fund raisers. At the event I got to see some insider perspectives from well known private equity players.
In speaking of the overall real estate market both GP’ and LP’s were in agreement that there is possibility of a “double dip” given a high probability of a reversal of currently low interest rates. My personal gut feeling is that opinions expressed at such panels lag the market reality. In other words as the panel is saying “we may be near the bottom” what’s really going on is that we are at the bottom. And when the panel says “we appear to be at the bottom” the market is already on the recovery leg. One panelist did point to the fact that there is no need to buy at the absolute bottom so long as you expect the recovery over the holding period to be sufficient to coutercompensate.
Another theme of the conference was that debt is the new equity. With most leveraged deals now under water sponsors have become nothing more than building janitors, managing the buildings for the debt holders. Many development loans which are clearly underwater are remaining to stay as “current” on lender’s books as the as project is slow to draw down interest reserves (low interest rates). As a result the only market activity that is taking place is on the debt side and even there the banks & REMIC’s are reluctant to sell leaving FDIC loan sales as one of few buying opportunities.
GP’s and LP’s have emphasized a newfound importance of local operating partners as today’s market requires more “hands on” approach. At the same time both GP’s and LP’s raised a valid concern that local operating partners are facing organizational issued as they redirected their efforts from acquisitions to asset management.
Overall the conference provided a good understanding of what challenges and opportunities are in store for the industry and I am hopeful ULI will continue to make this a regular even.
