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Bisnow Special Report: Industry Titans On What Brexit Means For US Real Estate


When NYC real estate royalty Richard LeFrak woke up in London yesterday, he knew the world was forever changed. Immediately following the monumental decision, Richard told Bisnow the entire financial services industry was taken by surprise, which of course sent stock markets around the world sliding and many wondering what this move would mean for our global economy. But as a man in charge of a more than century-old powerhouse, he has some concerns about what the move could mean for the US commercial real estate industry.


Richard tells us Britain's decision to leave the EU could have some initial positive impact on the states, pushing capital to US shores as London's finance sector flees to mainland Europe, taking European real estate values along with it.

However, there is cause for concern, as Richard says if this first step backward in European unification turns into a footrace, we could see a European recession, meaning slow growth and continued low interest rates in the US.

But we don’t know if European disintegration will come out of this or not—and that uncertainty defines how the markets are feeling, as they reel from the initial, short-term shock of Brexit. The pound sunk to historical lows on news of the referendum’s results while US Treasuries surged, as investors traded their sterling for the relative safety of the greenback.

But this initial shock is just what Georgia State University economist Rajeev Dhawan calls "first order" impact: an overreaction that tells us little about how markets will settle out in the long run.

Rajeev, who is director of the Economic Forecasting Center at the university, says the market is reacting as if a company failed, like during the recent US financial crisis.

"The Lehman failure was a symbol of a lack of global demand,” Rajeev tells us. “[Brexit] is just a change on paper—nothing has happened on trade or anything. Everything has to be worked out, it's not as if tomorrow the trade is going to stop.”


Real estate mogul Bill Rudin, who heads another industry dynasty, tells Bisnow while the short-term uncertainty and market turmoil are certainly not a good thing, he sees a potential benefit for commercial real estate.

“It’s hopefully a positive, being a safe haven for investors and people wanting to put their money to work here,” Bill tells us. “London and New York compete as global financial centers, so hopefully, in terms of leasing activity, this will be a positive.”

That transition may have already been underway, according to international real estate attorney Edward Mermelstein, who told Bisnow before the referendum Brexit could add fuel to a shift.

“We’re currently seeing a flow shifting to the US out of the former USSR, as well as many of the Middle Eastern investors—who were very comfortable in the British market,” he said.

Money Talks

Britain plans to begin negotiating its exit in October, after a replacement is found for Prime Minister David Cameron—who resigned following the referendum.

The whole exit process will take place over the next couple of years, and American Realty Advisers CEO Stan Iezman tells us it will be “a very messy divorce to try and resolve,” which will only perpetuate the current air of uncertainty.


Stan tells us that uncertainty translates to capital flows slowing down.

But, while sinking interest rates would normally bode well for real estate, Stan says the situation will most likely result in widening spreads as well.

American Realty Advisors is one of the largest privately held real estate investment management firms in the US, with more than $7.3B in assets under management. Some of its investors are overseas.

But Stan says the company's investors in Europe are pension plans, so they’re longer term and less concerned with the political implication of this, adding most of them are from the Netherlands.


Rajeev says Brexit is actually good news for interest rates, as the move is likely to help reign in the prospect of future hikes.

Still, CEO of Los Angeles boutique investment bank Greif & Co Lloyd Grief says the decision will mean a slowdown in cross-border deals, in a year that so far has already seen slow M&A activity.

“I would say it’s a net negative, and there will be people who take a back seat to wait and see what happens when the dust settles,” Lloyd tells us.

Trade with the UK makes up around 3% of overall US trading, he says, so the effect on the US economy directly, though it exists, isn’t exactly a  “stop the presses impact.”

“The real question is, ‘Does this light a fuse in the EU, and cause the whole EU to blow up?’” Lloyd says. “And that could happen, you could see a follow-the-leader sort of situation. People are waiting for the next shoe to drop.”

Politics And Trade

Immediately following the monumental decision to leave the EU, pro-Brexit leader Nigel Farage said June 23 would go down in history as Britain's Independence Day, calling the more than 40 years spent as part of the association a failed project

The results of the Brexit vote opened the door to anti-EU parties in the Netherlands, France and elsewhere—meaning the dissolution of the world’s largest trading block.

London office rents have shattered previous record, CBRE data shows.

Transwestern chief investment officer Tom McNearny tells us if EU member states did begin to exit, the resulting trade barriers could be bad news for commercial real estate.

“At the end of the day, free trade is good for all of us,” Tom says. “Clearly from a real estate standpoint, the more goods you have moving the more you need warehouses and retail space.”

And the political implications could reach further than the shores of Europe. For Stan Iezman, the real worry of Brexit is what votes it could foreshadow in the US.

“I’m much more concerned about what this looks like for the US, to the extent that this forebodes an election where Donald Trump could be elected because of this populist blowback,” Stan tells us. “And what does that foretell in terms of trade partnerships?”

Nothing good, most likely—though Trump is an industry vet, he’s been staunchly opposed to the turn-of-the-century free trade deals like NAFTA and CAFTA. 

KPRS Construction exec and chairman of NAIOP SoCal’s legislative affairs committee Kevin Ivey agrees, saying the Trump candidacy is a reflection of the populist movement expressed in Brexit.

“They’re cousins of one another,” Kevin tells us. “They’re two sides of the same coin.”

And the isolationist tendencies of Trump and the pro-Brexit crowd restrict capital flows—which doesn’t bode well for real estate, Stan says. “Those of us in the capital markets like the idea of the free flow of trade and capital.”


For the members of the commercial real estate community really fighting it out in the streets, the decision does seem like mostly good news.

Colliers executive managing director for Greater Los Angeles Hans Mumper said it only helps US values when investors grow cautious of placing their money in Germany or the UK.

It makes the US that much more of a safe haven for capital,” Hans tells us. “I think there’ll be a flight to certainty.”