Steven Bandolik, director of the distressed debt and asset practice with Deloitte, sees a “flight to quality” in commercial real estate.
“It’s a tale of good cities,” he said. New York and Washington D.C. real estate markets are prime targets for foreign and domestic investors, but the rest of the country is lagging behind, he said.
Bandolik splits his time between New York and Chicago, and the Windy City has not been spared by the economic downturn. The O’Hare Airport’s hotel sector has been hit particularly hard, with the 467-room Wyndham O’Hare and 429-unit Sheraton Chicago Northwest closing in recent years.
Pension funds have strong capital for real estate investments, and even the Canadians have scooped up Manhattan properties. Last May, the Canada Pension Plan Investment Board, which has $123.9 billion in funds, partnered with SL Green, taking a 45% stack in 600 Lexington Avenue. Meanwhile, some foreign banks are still slow to lend.
Deloitte specializes in four areas: audit, tax, consulting and financial advisory services. Each branch of the firm works together, and globalization has made business even more diversified. Bandolik, who was previously CEO of advisory firm Real Asset Recovery Group, regularly talks to clients in Europe and Asia.
The downturn has made accounting firms like Deloitte more valuable, Bandolik believes, because consulting is much more critical in tough times. Compliance and risk analysis are also important for clients when times are leaner.
He works with pension funds, hedge funds, insurance companies and life companies. Deloitte is also involved in outsourcing.
Bandolik said that investors’ expectations have cooled to a reflect the market. They are no longer expected 10% to 15% annual returns, instead seeking secure investments with more modest gains. They are also looking to be less leveraged, in order to avoid another bubble.
However, with buyers paying as much as $990 per s/f, as in a recent deal, there’s concern that another one is already forming.
