If Your Friends Ask, Here's Why You're Bullish on California
Yesterday, Allen Matkins held its seventh-annual View From the Top at the Beverly Hilton. More than 700 top-level real estate execs heard why the US— California in particular—are the best alternative for real estate investments. (Aside from the usual patriotism.)
Tech and social media have been driving real estate, so emcee Tony Natsis ticked off a few tech industry terms, “so you can be on your game during cocktail parties.” If a techie refers to you as a 404, the universal signal that a file can't be found, it means he thinks you're clueless. Productive collision sounds negative, but it's what creative spaces are designed to do, and companies wanting employees to use their own electronic devices has spawned the acronym BYOD: bring your own device.
Managing partner David Osias says Allen Matkins hosts the View as thank you to the real estate industry, which has been key to its growth.
Fred Allen, one of the firm's founding name partners, recites a few positives for the industry, starting with the fact that the US is now totally energy self-sufficient.
Eastdil Secured president Michael Van Konynenburg, one of three keynotes, explains why he thinks we'll have a "Goldilocks type of period" for another two or three years. The questions everyone asks are how far into the cycle are we, and how far do we have to go? Interest rates are below '04 levels, and employment rates and leverage are at or near, he notes. Meanwhile, transaction velocity, values, job growth and availability of capital are at '06 levels. When interest rates rise, it won't be the end of the world but probably "the beginning of a pretty good run.”
Kilroy Realty CEO John Kilroy Jr. points to the parade coming down the street. That would be Millennials, who are driving urbanization, densification, public transportation, and sustainability. With 151 SF per employee projected within the next few years, “You've got to be next to public transportation, because nobody parks to these ratios.” In addition, he says much of the office stock is technologically obsolete, so in certain markets with high vacancy you'll still see new construction. (Unless obsolescence somehow becomes cool to Millennials. You never can tell with those folks.)
Hudson Pacific Properties CEO Victor Coleman talked about how one person can see things differently from another. Some of the tech, social media and media-entertainment companies that have been the drivers of this cycle don't have perspective on how bad the downcycles have been in the past, he notes. "They were just ramping up in '05, '06, and '07, so it's going to be interesting to see how they adapt and prepare for it." Things he finds concerning include the loss of middle-wage jobs, LA's growing paucity of Fortune 500 companies, and the city's antiquated tax code.
Speaking on a Western Region investment sales panel, Commonwealth Partners principal Rick Lewis (right) says the firm's acquisition activity has shifted to the East Coast, focused on tech submarkets. That said, the firm bought City National Plaza nine months ago, where it's hoping to land one of several large tenant deals; one in particular, a tech/social media-related firm moving from the Westside, will change's people's perception of Downtown LA, he says. Kilroy CIO M. Eli houri says the firm feels there are still opportunities to mine in its existing markets of Seattle, the Bay Area, LA, and San Diego, putting better product in front of tenants.
Douglas Emmett CIO Kevin Crummy and CBRE vice chairman Kevin Shannon, who says he likes to put money in markets that have a good basis bet, including Phoenix, Orange County, and LA; he also likes Portland and LoDo in Denver. According to Kevin Crummy, the Westside, where new construction is constrained, should see attractive rental rate growth as the market reaches equilibrium. He says it has a "Beverly Hills plastic surgeon outlook: Buy an asset, give it a tummy tuck and a facelift," and then bring in the tenants.