June 10, 2016
Connect Los Angeles brought together nearly 500 CRE leaders for an information-packed conference at The Bloc’s Sheraton in DTLA. The second-annual event featured four panel discussions where more than 20 top industry minds shared insights into the trends, drivers and future of real estate in Los Angeles.
Connect Media will be sharing more in-depth reports of each panel over the next few days, but here are a few key takeaways that stand out from this year’s conversations:
Mid-Year Economic Report Card
Economists, lenders and investment brokers shared outlooks for CRE at the tail end of the cycle.
- Kevin Shannon, Newmark Grubb Knight Frank conceded we’re “in a choppy time” with the primary concern he’s hearing in the marketplace being that the 84 months of recovery has “gone on so long” it must be nearing the end of the cycle.
- KC Conway, SunTrust Bank thinks “where we’re headed now is a down shift,” predicting we face a “mild recession.” Adding that “a serious issue” is looming. New risk regulations will cause lending to “come to a halt” as CMBS will “shut down this summer.” It won’t be resolved until banks figure out how to manage regulations and the next White House administration fixes the situation.
- Paul Angle, Hunt Mortgage Group says there’s not been an “overbuilding of housing” as the shift in households continues, which is expected to cause multifamily “vacancy rates to drop in 2016.”
- Jerry Nickelsburg, PHD, Anderson School of Management, UCLA says “there’s nothing in the data today that suggests a recession in the next couple of years,” though “risks abound.”
Work, Live & Play in the Mixed-Use Environment
Owners, investors and developers discussed creating live/work/play communities in emerging neighborhoods. Together, they touched on opportunities, challenges, and focus areas, as well as what it takes to create residential, retail, and office atmospheres that are always abuzz.
- Marc Gittleman, Rising Realty Partners says success has been achieved when they’ve “created something unique,” typically through “project differentiation that justifies the cost” of a project.
- Steven Fifield, Fifield Companies says “cool places are emerging” in areas where it is “not difficult to develop,” noting the 14 key LA submarkets, 10 of them are tough to assemble land for development. That’s caused certain submarkets, such as DTLA, to experience more development of unique environments, while Santa Monica hasn’t seen that occur.
- Joseph Miller, Runyon Group says the company’s “focus on tenant quality” as a way to “drive rents,” when curating a distinctive tenant mix. “The success of tenants leads to increased rents.”
- John Tronson, Avison Young notes “tenant fatigue” is common among Angelinos so it is wise to create mixed-use projects with an array of tenants such as a vegan organic restaurant, upscale burger place and cross-fit training spot because it “appeals to a wide demographic” audience.
- Ken Fields, Greenberg Glusker says tenants are pushing the envelope as they seek to create their work environments, too. Some have even been negotiating “drone rights” into deals.
Capital Flows, Construction Costs, Competitive Acquisitions & Cycle Worries
The panel answered the inevitable burning question: where is my next deal coming from? Investors, capital sources, acquisitions managers and investment brokers covered the climate of capital markets and strategies to position investment opportunities amid a volatile economy in 2016.
- Marc Renard, Cushman & Wakefield noted a “psychological inflection point for investors” has been reached, characterized by a changed “narrative of cautious optimism,” highlighted by risk aversion as we “get long in the cycle.”
- Clare De Briere, The Ratkovich Company noted it requires “extreme due diligence” to complete deals today.
- Chris Macke, American Realty Advisors says the “critical” key to deals is finding “stimulation” in projects, whether that be in urban, suburban or an emerging “pseudo urban bridge” that’s between the two.
- Thomas Whitesell, CapitalSource says all the analyst questions being asked about the stability of the markets and projects since January has caused a ripple effect throughout the industry. Ultimately, that’s “created a huge pull-back in bank construction lending.”
- Ray Rothfelder, John Hancock Real Estate noted the decision to divest an asset in San Francisco was based on a strategic shift to start “taking money off the table and redistributing it elsewhere.”
- Patrick Schlehuber, Rexford Industrial notes it may require “a creative flair” to get deals done today, citing a merger they recently completed as a way to acquire an asset they wanted.
CRE’s Young Leaders: Millennials Making Moves
Millennials continue to inundate the workforce and technology continues to impact on the CRE industry. Millennials shared their point of view on how to construct efficient multi-generational teams, network effectively, recruit new talent, and build relationships with mentors.
- Kloe Colacarro, Caruso Affiliated’s using technology to enhance the customer experience, yet technology doesn’t necessarily affect leasing in the traditional sense.
- Roham Tabankia, Ten-X “democratizes the transaction.” With technology, it’s imperative for any team from old to young to be able to work collaboratively.
- Michael Roberts, Colliers says that to work efficiently with younger employees, you should “embrace the traits of millennials and don’t try to change them.”
- Matt Howell (Lincoln Property) believes that even though technology is changing CRE, “real estate is still 50% underwriting and 50% relationships.”
- Christine Pratt (Freddie Mac) enjoys working with millennials because they are able to pick up on new technology quicker and understand it better.
- Malcolm Johnson (JP Morgan) advises anyone entering CRE to become a go-to person around technology to add value to the company.
Tags: acquisition, American Realty Advisors, apartments, avison young, CapitalSource, cbre, condos, construction, creative office, cushman wakefield, development, downtown los angeles, Fifield Companies, Greenberg Glusker, hotels, Hunt Mortgage, industrial, investment, John Hancock Real Estate, leasing, mixed-use, multifamily, NGKF, office, restaurants, retail, rexford industrial, rising realty partners, Runyon Group, SunTrust Bank, the ratkovich company, transactions, ucla