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Positivity's Back!

New York
Positivity's Back!
ULI New York District Council chairman and Benenson Capital Partners COO Richard Kessler
The Urban Land Institute recently wrapped up its Spring Real Estate Summit in Beantown (which you can read about in Real Estate Bisnow Boston), so we sat down with New York District Council chairman and Benenson Capital Partners COO Richard Kessler to see what he heard during the three days. The attitude was much more positive, he reports—it was the first time in months that he didn't hear anyone talk about the anticipated $1.4 trillion in mortgages coming due. The majority of panelists say the recession is over, and employment trends should improve by '11. Mid-market firms will be the most negatively impacted, without the nimbleness of smaller, niche firms and the capital of the larger firms, he says.
Crowd shot from ULI's Spring Conference in Boston, April 2010
The SRO crowd, snapped by Bisnow reporter Susan Diesenhouse. People are still talking about distress, but the commercial real estate market is not coming to an end, he continues. Everyone was buzzing about SL Green's $193M purchase of 600 Lexington and the fate of 510 Madison—perhaps the former is a sign that the investment market is on its way back. Fundamentals are still experiencing lower rents and increased vacancy, but people want to stay in commercial real estate and ample capital has been raised to invest in it—it's almost a tale of two cities, he says. There was also plenty of technology talk, which could be seen with the addition of companies like Cisco and Lutron as sponsors this year.
Deloitte Real Estate Services leader Bob O'Brien
New found positivity was also felt at NAREIT's recent REITWise conference in Orlando, which Deloitte Real Estate Services leader Bob O'Brien attended. In early ‘09, you saw some equity raising from REITs looking to strengthen their balance sheet due to the risk and uncertainty about debt financing availability, he tells us. Many REITs continued to raise capital to position themselves, and now they're talking about opportunities. The debt markets and CMBS issuances are coming back to life, which are creating optimism in the capital markets. Treasuries have narrowed, and you're now able to get bigger loans. But he still saw uncertainty and concern about fundamentals and outlooks, especially with slow job growth and low consumer confidence.
Crowd shot from the NAREIT REITWise confernce in Orlando, Florida, March 2010
One hot (albeit complex) topic was proposed leasing accounting guidance, requiring tenants to record the right to use space as an asset, and record the present value of the lease payments as a liability on its balance sheet, even for a lease formerly accounted for as an operating lease, Bob says. The tenant will then recognize both the amortization of the right and interest expense associated with the liability as expenses—this may change the way the tenant looks at a lease transaction. Additionally, proposed leasing guidance will also impact how REITs record their assets under lease--they'll possibly have to record assets and obligations that are not recorded today. The REITs don't like it, concerned it will be more difficult for investors to understand REIT operating results and the estimated value of the real estate, he notes.