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New York
Hey, even if you're not involved in high finance, you should pay attention to REITs—they're a leading indicator of the health of the industry. That's why we've deployed Bisnow reporters to NYC today for NAREIT's annual REITWorld conference, full of muckety-mucks who actually know what REIT stands for. (We believe it's "Recession Ending Investment Thingies.")
About 1,300 are attending the conference, which features presentations from 100 REITs, plus decent food at the Waldorf-Astoria. In 2011, NAREIT (the national association, whose members own CRE assets totaling about $500 billion) will back legislation to help REITs achieve greater operating efficiencies. That was announced yesterday by incoming NAREIT chair (and Avalon Bay CEO) Bryce Blair.
Vornado's Joseph Macnow, Mike Fascitelli, and Wendy Silverstein
NY office, DC office and a retail segment make up 80% of Vornado's EBITDA, Vornado's Mike Fascitelli, center, says. (He may have been vamping for Joseph Macnow and Wendy Silverstein—Joseph says NAREIT's chairman took him to the wrong room.) 90% of the triple-B-rated REIT's income comes from NY and DC. NY office fundamentals swung positive in mid-'09, with rates low but velocity looking good, while DC rates and velocity both accelerated. Value-add infill retail like NY's 510 Fifth Ave. and DC's Georgetown Park also look promising. Mike pointed to 1540 Broadway (the old Virgin-store-becomes-Disney Store story). Removing the tenant took five years, plus $100M in equity to re-do the space, but Wendy says Vornado can still refinance or sell for more than it put in. And don't forget the company's $400M buy into Toys R Us, $600M for JC Penney, and $150M for 26% for special servicer LNR.
Equity One CFO Mark Langer , CEO Jeff Olson, and president Tom Caputo
“Propensity for density with intensity”—that's been the change for Equity One over the past year, says CFO Mark Langer, CEO Jeff Olson, and president Tom Caputo. The REIT closed $1B in shopping center acquisitions in San Francisco, New York, and Miami. These average 200k people within three miles of the centers, while in the past, it's only been 80k. The deals have high tenant sales ($700/SF, while a “good” grocery usually earns $400/SF) and below-market rents—one NYC acquisition was purchased for an undervalued $40/SF, which it will recapture. Equity One also seeks the ability for redevelopment and redensification. It would like to add Los Angeles and Boston to its acquisitions list, aiming for a portfolio that will eventually be one-third each Southeast, West Coast, and Northeast.
Acadia Realty Trust CEO Kenneth Bernstein and CAO Jon Grisham
Stabilized retail is an oxymoron, say Acadia Realty Trust CEO Kenneth Bernstein and CAO Jon Grisham. If you're going to be in shopping centers (Acadia is half supermarket-anchored, half street retail), you have to be able to add value. Right now, the REIT has 2M SF of redevelopment in its pipeline. You won't see Acadia winning any stabilized, core assets soon, as there's a lot of capital and competition chasing those deals. There are also a lot of overleveraged assets in the market, and that's where we'll see the REIT's future acquisitions. Some of the best opportunities are in distress and mispricing, they say. For the past 10 years, it sold off the bottom half of its portfolio, and instead focused on markets with high barriers to entry. As a result, Acadia held up better, and its overall occupancy is in the low-90s.
Tanger Factory Outlet Center CEO Steven Tanger
The economy and consumer are strengthening, says Tanger Factory Outlet Center CEO Steven Tanger, whose outlets are meccas for shoppers looking for value and brand names. Its 33 outlets will see 160M shoppers by the end of the year, and sales have increased 6.3%. Its most recent center opened Nov. 5 in Mebane, NC, and was 100% occupied on opening day. An additional outlet center will open on Hilton Head, SC in '11, and 73% of its leases are already out to signature. Overall, it signed 358 stores to 1.4M SF by September, and an additional 1.14M SF in renewals. The REIT has a pipeline of potential development in 17 markets, but Steven notes particular interest in Phoenix, Scottsdale, and Houston, which have “great demographics.” Consumer demand for such outlet centers is so great that he envisions up to 100 new centers (not just Tanger) across the US over the next 10 to 15 years.
Ventas CEo Debra Cafaro and president Raymond Lewis
Ventas certainly has much to be proud of: Earlier this year, the REIT rang the NYSE closing bell after being named “Top Financial of the Decade.” And it's well positioned to continue its growth, says CEO Debra Cafaro, who presented with president Raymond Lewis and David Smith (not pictured). Once it completes its $3.1B acquisition of Atria Senior Living Group, it will be the largest owner of private-paid senior housing, she says. Thank targeted demographics with strong fundamentals. The over-85 group is growing the fastest, and with limited housing supply, it saw a 110bp increase in seniors housing occupancy. Baby Boomers are also creating a push to low-cost outpatient settings, and Ventas predicts it will benefit from healthcare reform in the long-run. The Atria purchase, coupled with its integration of Lillibridge Healthcare Services, will further allow the REIT to grow its platform, they say.
NAREIT's Kurt Walten and Public Storage CFO John Reyes and CEO Ronald Havner Jr.
Self-storage may not be recession proof (we're old-fashioned and hide our cash in mattresses, not storage units), but it is recession resistant, according to Public Storage CFO John Reyes and CEO Ronald Havner Jr. (with NAREIT's Kurt Walten, left). The REIT only dropped 4% (many fell as much as 90%), bottoming during Q4 '09, and has experienced an uptick since—this was the first time it experienced such a drop, they add. In Q3, its 2,000 facilities in 38 states saw a move-in volume of 15,000, a 7% increase year-over-year. Year-to-date, Public Storage has invested in 40 storage facilities totaling 25M SF paying an average of $90/SF, and will spend $15M more by year's end, they say. Many of the assets that Public Storage has purchased are bank foreclosures, which are cheaper to acquire and fix than to develop from the ground-up. They're particularly watching growth in the Southeast and on the West Coast
Digital Realty Trust CEO Michael Foust and CFO William Stein
There's a shortfall of data center space, and the lack of supply will continue into the immediate future, says Digital Realty Trust CEO Michael Foust and CFO William Stein, of the world's largest wholesale data center provider. Growth of new applications—think cloud computing, data archiving, customer relationship management, and e-mail—is still driving demand. Two-thirds of its leasing activity has been existing tenants expanding—it counts Facebook, Zynga (Farmville, for you addicts), and Fortune 100 firms among its clients.