News
RISKY BUSINESS
November 3, 2011
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| Northwestern Mutual just can't underwrite investments on trending rental rates, says Eric Ekeroth (at our recent Capital markets event) . If economic conditions stay the course, then yes, a 5% rent growth over three years would drop a 15% return in Northwestern's wallet, but there's too much uncertainty nowadays to assume the economy can walk a straight line. (We'll have the economy avoid any sobriety tests for the near future.) Eric says his firm selects investments based on job and rent growth (so, Columbia over Gaithersburg) and institutional interest (he backed out of a deal in Richmond, Va., that looked surefire but lacked likely institutional buyers). |
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| First Potomac CFO Barry Bass says his REIT likes to zig when others zag, so when "lifers" were sitting, his firm was buying. And now it's venturing into lending. He says 65% of deals this year were in CBDs, and his company's portfolio (balanced between stabilized properties and development opportunities) could see some nice rent pops. |
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| MacKenzie Commercial's John Black says multifamily is the favorite son right now, though the quality and durability of a building'sincome stream is more important than the property type. Barry says First Potomac focuses on office and industrial because real estate is a long-term game and those sectors correlate to job growth, meaning that whenever a faltering economy finds its footing, those sectors arewell-positioned for growth. |
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| On the single-family side, Reznick Group's Michael Hartman, our moderator, adds that financing for fee-simple, for-sale residential(like townhomes) simply can't get done right now. |
