[slideshow id=4 w=590 h=400]Roland Li for Real Estate Weekly
On Thursday, Steve Roth, chairman of Vornado Realty Trust, was having a moment.
“I’ve fallen in love with a graph,” he said, but before he could elaborate, Sam Zell, chairman of Equity Group Investments, LLC, interjected.
“Have you tried women?” Zell asked, prompting roars of laughter from the crowd. He would go on to suggest a few candidates, causing at least one lady in the audience to cover her face, according to witnesses.
Such exchanges have become a tradition in Zell and Roth’s annual panel, which also includes William Mack, chairman of AREA Property Partners and Mack-Cali Realty Corporation. Dubbed “The View from 10,000 Feet,” it was the sixth meeting of the trio and the headline event of the N.Y.U. Schack Institute of Real Estate’s annual REIT conference.
Zell and Roth make for striking foils. Zell has been dubbed the “grave dancer,” for his taste for distressed properties and troubled entities, such as the Tribune Company. Many of his assets are now overseas, and he would later describe the U.S. single-family residential market as a “disaster.”
Roth heads Vornado, known for its conservative investments and vast portfolio of over 100 million s/f, concentrated in New York and Washington. In contrast to his reserved company, Roth is blunt and uninhibited when he speaks at events.
The graph that Roth loved was a measurement of rents over the course of the past few cycles. Although they dropped precipitously after each crash, Roth said, they would historically rebound at around three times the pace of the drop. He was optimistic about future rent gains, particularly in New York.
But Mack was less confident in the overall market. “These are tremendously uncertain times,” he said, citing the federal and state deficits, turmoil throughout the world and a looming government shutdown. On the other hand, improving employment numbers and increasing real estate transactions, particularly in New York, have led to local optimism and a bifurcated market.
Mack said the country would need to consider slower growth, higher taxes and a smaller budget, lest it risk falling to emerging countries in Asia and South America.
Already, new markets such as Turkey and Brazil have become attractive investments for the panelists. Mack said he recently opened a mall in Turkey, and Zell’s BR Malls is the largest retail property owner listed on Brazil’s stock exchange. The appeal of the country was simple, said Zell: “Growth,” with retail expanding by 15% each year.
James Stuckey, divisional dean of N.Y.U. Schack, noted that around 20 students had recently returned from a trip to Brazil, and they all saw job offers in the country. For those who didn’t speak Portuguese, training was offered, and some students were planning to return.
But when asked if Vornado was considering overseas investments, Roth shook his head and said tersely, “I’ll take New York and Washington, thanks.”
Zell’s outlook was glum for most of U.S. He said that a true recovery wouldn’t be possible without “the 3,000 miles” between Los Angeles and New York, and noted that great swathes of the country are filled with troubled, empty properties. In examining supply and demand, Zell considered a question that is essentially anathema to all developers.
“How much real estate do we need?” Zell asked, suggesting that high vacancy rates and unsold homes were indications of excessive inventory.
Roth didn’t go as far as question development, but said, “Growth in America is not inevitable. It has to be earned.”
At an earlier panel on restructuring and recapitalization, Cushman & Wakefield CEO Glenn Rufrano said that while foreign capital was available, many acquisitions were led by local investors. He citing the recent sale of Capital Square in Singapore, a Class A office building with 339,000 s/f of office space, for $715 million to Alpha Investment partners and NTUC Income, local investors. He also noted Boston Properties purchased the John Hancock Tower, a building down the street from its headquarters at 800 Boylston Street, for $930 million.
Rufrano also assured his peers to not worry about missing out on deals in recent years. “We’re in the second inning of a nine-inning ball game,” he said, a phrase that had much different implications from the words of Morgan Stanley chief John Mack in 2008. Instead of warding off a looming crash, Rufrano was expressing confidence that the market had many opportunities in the future.
For all their concerns, most of the event’s panelists seemed to agree, although opinions on the exact location of the opportunities vary.