Real Estate Outlook: A More Attractive Asset?

please welcome your panelists for real-estate outlook a more attractive asset moderated by Bloomberg TV's editor-at-large Eric Schadt skirt good afternoon everybody and welcome to the real estate outlook as god just said I'm Eric Schatz Kerr and I am delighted to welcome a very distinguished group of panelists I'll introduce you to them briefly if you'd like to read up a little more of course the Milken Institute has kindly provided us with very detailed biographies I let me start on the far right we have Neil bloom of Walton Street Capitol immediately to my right is Bob Morris of the bridge Investment Group to my left a loafer of Ophir global to his left Simon excuse me David Simon of the Simon Property Group and finally Sam Zell of equity group investments I mentioned that they're a distinguished group of real estate investors what makes them different however is that they don't all do the same thing and I think that's going to become clear some of these gentlemen are highly specialized in what they do David for example of course is focused on largely malls in the retail industry Bob is focused largely on value-added investments in real estate some of our other panelists range more widely together I think they're going to provide you with a really comprehensive sense of the outlook for real estate as an investment and I think I'm going to begin with a very simple question which is where are we in the real estate investing cycle which of you guys would like to begin with that one the 11th inning the 11th inning of a how many innings long extra inning game longer than I expected what does that mean Sam before in the 11th inning I think that you know the by you know the the bottom of the recession was o.9 we had a very unusual set of circumstances where from oh 9:00 until 15 we built almost nothing I don't think there's ever been a period since World War 2 where we've ever built that little now how we're getting to get reacquainted with over supply and over the next 24 months I think we're gonna see a lot of new buildings I don't know what you live in Innings mean why do you say which I don't know what 11 innings mean because I'm not familiar with American football but it's baseball just shows you how much I know I think what Sam is trying to say is the carton of milk in the refrigerator is well past its best before date Bravo and I agree with it why the word is a washed with money at quantities which are unprecedented and and this money is chasing assets the level which has not been seen before and it causes asset values to increase and you to compress to a level which any change in interest rates or inflation would make them unsustainable any change in inflation and in interest rates you know Erica I think that in answering that question in part you have to put it in relative terms compared to other markets and and I we've heard a lot about the equity markets and how equity valuations are high how interest rates are going to rise etc and in in real estate I think that there's there's potentially some value left on a relative basis compared to what are some pretty lofty valuations in the in the equity markets now it depends on what you buy where you buy it whether you're investing in the US or overseas and and in in some respects the core markets which are pretty closely correlated at least historically have been very closely correlated to interest rate it's seemed quite pricey but in some other parts of the asset class there may still be some opportunity to eke out some alpha at the asset level do you feel in principle would you agree in principle with these other two gentlemen that we're pretty far along everybody who I've spoken to at Milken says that we're very far along so it must be right consensus is a dangerous thought but everybody but everybody is very cautious and nobody has been able to articulate why we're so far along and what the excesses are that that that should precipitate a downturn so why don't we ask David Simon or Neil bloom to give that a try why why are we so far along if the excess is apart from the and I'm not sure I'd call it an excess but the surplus of capital is the only one that that we can see well we're NIF I agree that we're late in this cycle but we're in a very different environment now we're in a situation where property prices are very high because cap rates are low because interest rates are very low we have interest rates now moving up people thought they were moving up over the last several years and they finally are starting to and you have a situation where there's a disconnect between buyers and sellers the buyers are expecting prices to be going down and the sellers are still looking in the rearview mirror I think cap rates have probably moved up except for really prime assets maybe 50 basis points on the other hand and there's is some development much more now than there was as Sam said sam neill well Sam you're looking at a lot of apartments there's more apartment developments how about office space it is starting in about hotels how about industrial there is development all over except in I'm gonna write that down so I don't forget all right but I would say this if we're going to have higher interest rates and we're gonna have inflation where it's going to be more expensive to develop new properties especially with steel etc you will looking out three four years you're gonna see a slowdown in construction because you won't be able to get a reasonable return on your your cost of capital on your cost of building the property as you look into the future but that right now you still have all the projects coming on that have been planned and under construction I don't know from my experience new higher interest rates in the higher level of inflation does generate tend to generate higher level of rent this is textbook the only thing which may hold it back is oversupply so where do you come down on the oversupply I think that we are in a stage of oversupply how right panel on terror in the 11th inning well we sit in the 11th 11th then we're still in the 11th I would just say I would say it feels like late cycle but I think you have to bifurcate it with the private and public markets because if you look at and I'd also say that real estate even if it is late cycle despite some oversupply and some product in some markets you're not going don't expect the carnage to happen you know the way we've seen real estate bust so so and and I think that's the difference here even though we're late cycle I don't expect a dramatic valuation change for why is that real estate is because and again seems to be well I think a lot of thrown to boom and bust yeah well I think a lot of it is the discipline that public companies have brought to bear in the real estate world also think that the underwriting from the financial institutions has gotten a lot more stricter so let's take an example and believe it or not we've all lived through the real real estate recession in the late starting in 88 89 lasting to 93 94 that was a real real estate recession the one that occurred in Oh 809 was child's play and I think it was short and it was temporary in fact real estate really a couple of people made some huge mistakes but overall the industry bounced back pretty significantly and I do and I do think even with late cycle I'd expect some adjustment but not dramatic dramatic downfall like we saw in the early 90s and in fact if you look at the public values today they're basically already and then whether they're right or not you know I'd argue that they're not necessarily right because I think the business is better than what the public markets think but they're already adjusting for you know the the the late cycle if you look at the private values versus public asset value you know there's 25 to 30 30 percent different so they're already assuming they're looking to in the future they've already priced in kind of late cycle values that dichotomy is really interesting because the the public rates have gone down pretty significantly in price they've way underperformed this year and yet when at least when we go out either to sell assets we there are enormous ly competitive and attractive bid for the assets that we're selling in the private markets and when we try to buy assets the terms and conditions under which yeah to which you have to submit in order to put an asset under contract have tightened up pretty significantly the amount of time that you have to do due diligence the hard money that you have to put down both have both have gotten much more favorable to the seller we benefit from that sometimes we we struggle with that some but there is that public/private dichotomy that that that begs that asked the question you know which which party is right maybe you can give me some advice because I've obviously been in the wrong arena and you have we've sold about 10 billion dollars worth of real estate in the last four and a half years four and a half years ago we put something up for sale and we had 30 buyers and 20 of them ready to go hard two years ago we put something up for sale and we had ten buyers and two ready to go hard now we put something up for sale and we wait in a hope that somebody will show up now maybe we're only operating in 48 states or something so we may not know what you're talking about but if you you know but I can tell you that you know the biggest element that's going on in the real estate market today is like the unicorns in high-tech you create the unicorns so you avoid price discovery you stay in the private market to avoid price discovery the public market is price discovery and the public market is telling you a very different story than the private market but the private market when the guys get slaughtered they don't make the headlines in the public market they do so I think you're you know getting yourself well I'm sure I can't give you much advice although if you're million listen you have assets that that no one is bidding on it we'd love to look at them the that the that's the reason nobody's looking these we you know mate maybe it's maybe it's the the different sectors within real estate some are of course more attractive than than others and I'm just talking about the US and I know many people on the panel have a much more global footprint and presence then then bridge does but there the u.s. is a pretty attractive place in which to invest there's a lot of foreign capital I was in Korea about ten days ago and and you know Korean investors still are looking for single-digit yields on on real estate investments that they make and and at least in the markets in which we participate single-digit yields are at the very low end of what the what the targets are they're not the core markets they're the value-add markets so there's still a pretty uh we found that there's still a pretty strong bid for first selected assets well I find that that there's you know on a low digit Korean timeframe you know that says if we start today maybe by the turn of the 22nd century they'll be ready to close you know if you go that slowly you can get a big price look I don't think there's any question that that it's there's not there's not nearly as many buyers and sellers transacting right now the number ent your rights actions are down enormous Lee for the reason I said earlier you got you've got a disconnect but you also have a disconnect between the prices of the public REITs and the private market the question is which one is right my guess is is something somewhere in the middle okay that is that prices or the private are gonna go up and at some point the REITs will readjust the problem with the wreathes is the reverse private will go down private yes private prices private prices will go down no question in there because interest rates are going up and we were not going to have this low of a cap rate in perpetuity and that's what's going on on the other hand it you know the only thing I'd say is that real estate is from a it's got better value today versus other equity securities today so to me that's even though there may be this adjustment because rates are gonna go up or there's more supply and values are going to come down it's still better relative value today real-estate than it has been these are the other equity interests in instruments I mean now that we're talking our book but I mean that that is that is a uni the way REITs our price today versus how they are measured visa V the SP is one of the lowest that's been it was as low you know I remember this back in kind of 1998-2000 level so that's what makes real estate even though there may be this adjustment in values it's still relatively attractive today than it was two three four years ago one of the points that you addressed directly David was what the bust when it comes is going to look like and we have indirectly addressed the precipitating factor interest rates and inflation before we get to the end what beyond interest rates and inflation might bring this cycle to an end Eric it's called supply oh yes of course you forgot right by the end to every single real estate scenario I we've been handled we we survived through twenty one and a half percent diamond real statements we didn't go broke crime was 21 and a half so when it's all said and done what created the depression that David was talking about and 989 1093 it was the Japanese you know they came in with bushels of money they said in Tokyo this building would be what only would be a two percent return I can buy it for four and then it got empty and then he sold it for 50 cents on the dollar because if I non-sitting yen because he financed it anyway okay there's nothing different then today then the past it's all about supply and there is a tsunami of supply coming down the road and if somebody in this Tappan Oh can explain to me where the demand is going to meet that tsunami of supply then we got someone to talk about MIT you saddle there's a book is the book he's playing in his book go buy his book would you please Sam better things not there is a supply of apartment buildings in the downtown areas where all the young people have moved because there was a tremendous demand for apartments and that's going to continue so you're feeling it more in that area but the amount of development in office certainly almost nothing in retail okay is nowhere near that much of a huge hit you know it goes market by market you know I think that I'm the largest owner of CBD apartments in the world okay and I can tell you that yes their supply and our occupancy has gone from 98 to 97 our rents have gone from up for to up to okay that's with the supply we're talking about what about concessions what about the who concessions how many months evening free we're not anywhere near what it's been in the past okay on the other hand I'd say the existing supply of retail represents the tsunami you don't need to build anything and it's gonna be too much office space somebody's building something called Hudson Yards 14 million feet of new space in New York next door to it is Brookfield five million square feet of new space next to it is Penn Central Station voron arrow owns seven million if they are unbuilt yet with nine million of all that space has been filled committed not filled yet what happens to all of the holes that that create we're gonna get we worked a over with your credit it's a deal Sam that's New York I have office building habits ll Co the market how about Drago rents are going up about a lot argon there's that one business it's better than then other than retail or within offices retail I just want to go on write office building the effect of rents go down every single year without going absolutely absolutely I mean you know got TI's I've almost doubled in the last three years in new office buildings across the country you don't think that's a concession so Sam do you feel good about your multifamily exposure yes yes you know within reason and our exam I think I'm a realist because they don't we don't see a lot of new supply in multifamily certainly no new Class B supply I'll send you some pictures send us some assets I'll send you some pictures okay you know I mean I mean somebody is gonna pretty soon figure out how much industrial space is under construction and how much of that space is all committed no alternative use for that stuff either right but you know the answer is that everybody thinks that their building is going to be leased Amazon everybody okay so you know and and God forbid you don't get the Amazon lease you know it's like ghostbusters who do you call [Laughter] I thought that if Sammy's in a good mood we are going to have a good discussion here Eric you were worried about this being lively yeah we want to change seats with Sam yeah let's get to the bust you know you know in other industries right there is occasionally something called supply destruction happens in mining for example in real estate unless you're in Detroit there isn't really supply destruction is there so if you think I'm not sure whether this is a question for you Sam are you al we heard a bit of David's point of view on the subject you're you two gentlemen here but David thinks that when the bus comes it's going to look mild say relative to what happened in 88 to 93 is that like leprosy is better than cancer I don't think anybody has a responsive Hey do we agree do we agree with David that it's a a mild Carlat recession in real estate or does it is it uglier than that let's start with the original premise there's more money out there and then there has ever been in history do you think that all that money is not gonna create loans to build new real estate Confucius says developers will build when money is available it was healthy you know there are hurt so maybe arise the difference that just to defend my spot even though Sam you know that's the big fun of my spot no he didn't know yeah no I of course but I'm not in the business I can't make fun of be sorry for you well by the way I just want to go on record we actually had more operating income than Amazon in the quarter-to-quarter but they'll cares about that right but just to go on record you know whenever I walk around in any room people go like how are you David yeah everybody sorry which by the time the first time I anybody ever felt sorry for me so it's great we're doing just fine in fact I don't mind a little carnage cuz that's when we've done our best work so we try to buy our competitor out of bankruptcy in onine it was the only real disaster which was gentle growth but we you know was had to deal with Bill Ackman it was a little complicated but point is the there is there is so much capital they are waiting for the if there is a down cycle that in the night in the other than Sam who's the original opportunistic money there wasn't that money in 88 to 93 very little bit and then Neil and Sam really started the kind of opportunistic money so when there are these busted deals whether it's because the credit cycle or because of too much development there's capital to pick it up on the cheap and and that and that I think smooth things out a lot more than what we saw in in eighty eight you know two ninety three or four I mean that that's the difference and there will be a cycle here without question we haven't had it in a long time and I don't think we had it in 1808 and oh nine I really don't but I don't know if Neil and I mean I to me it was so short and so temporary it really wasn't what I'd call a traditional alidade cycle we went into the O seven recession the first time since World War two where with a country went into recession and real estate was not an oversupply first and only time every other recession started with real estate oversupply the recession yet the oversupply got worse because demand disappeared you're gonna have a similar scenario here you know I raised the first Opportunity Fund in real estate in 1989 I remember pitching the insurance companies and the pension funds who by the way had plenty of money at the time the problem was they sat down with me and they said what do you mean we're in we're going into oversupply my MA our appraisal says I'm in great shape why would I want to finance buying distressed properties there's not going to be any that's where that's what the source of money said now you think in 2020 these savants are gonna get smart unlikely unlikely what do you say Neal yeah first place Sam you were talking about developers in all fairness I don't think you've ever built a building have you I have god damnit and that's why I have another with him you probably built one and it didn't work out three things oh great three sorry if I was three four three it's been harder to get construction financing over the last several years in part because of the rules the bank rules in terms of how much equity you needed how much of the banks alone and it's been very hard to really get a lot of overdevelopment I'm not saying that we don't have it in some areas but I'm much more in tune with the argument that's been made that we're we are in the late innings we're gonna have a slowdown we're gonna have a correction but it's not gonna be a giant problem like 1990 that we both lived in where there was massive bill over building and a recession and everybody thought you you know that you would survive anything that was great to just don't read good real estate nil except one exception it's true that the bank regulator said no wide lending into new builds into construction anymore and in came all kind of clever funds with very clever money and said I'll bridge the difference between what the bank gives you and up to 90% was even more at a higher cost and this really propelled a lot of people to get into developments which were otherwise not been dealt with and these opportunistic fans have made a lot of money picking up this gap between the returns yeah the TC i--'s of the world and others who came in and said I'll give you up to 90 percent I will bridge anything between what the bank gives you and what you what we think the future value is and I'll give it to you at ten fifteen ten to twelve percent we don't do a lot of development so I don't really know much about what the cost of development loans is but I must say in financing assets spreads have come way down from what they were just a couple of years ago even as as interest rates have gone up LIBOR gone up and where we were borrowing at at LIBOR plus 250 a few years ago we're borrowing at LIBOR plus 160 to 175 now for multifamily assets and and it's it's kind of surprising how aggressive many banks are often there are multiple bids in that respect if if the if the velocity of money decreases if some of that 11 trillion dollars that's been injected into the financial system starts coming out if the Fed tapers more than more than it's been doing you know I could certainly see spreads going up and when spreads go up that's gonna have a negative effect on on prices for sure because what you can return on a leverage basis you know not being crazy about leverage not not using mezzanine not using preferred equity is is still quite strong relative to other asset classes a out your as global and investor is anybody on this panel if you were to look around the world what's the most overpriced real estate asset class Sam is dying to answer this question now he was just describing it to us two seconds ago yes it's it's it's offices and residential where it's us mainly mm-hmm I'm talking us if you go class a coastal office space Class A I know very little between two between the two coastal areas and residential at the higher end of the low end at the high end Sam well I mean I mean Hong Kong is that you know that's when he and I were talking about a few minutes ago pricing in Hong Kong is beyond the pale but it's not reflective of any market condition it's bad it's fly cattle because too high because there's no supply right well guess what there is no place to supply additional the Hong Kong has been built now building or building on building I mean and the oxygen left between the buildings yeah but that's right but basically adding supply is very relevant I wanted to comment Neal on what you said about the cost of construction there's no doubt that the cost of construction is going up but I think what people don't look at here is that the accordion in real estate values is not the cost of construction of the land huh when I went to Hong Kong for the first time in 1980 I was stunned when the guy explained to me that the land value was 80% of the value of the asset in 2000 and if they are in New York the floor area ratio sold for $50 and fer when I took it when I sold equity office in 2007 the most recent FA our number was $1,500 yep so the accordion went from $50 and if they are to 1500 hours in FA are in seven years if it went that much in seven years up who's to say it can't go down yeah I think was Will Rogers who said you know in 1928 by land they ain't making any more of it he obviously never drove drill through Florida or California or Nebraska so us high-end office space luxury residential you agree yep and Hong Kong oh sure but on Congress note but there's no reckoning conch is not real estate yeah safe haven yeah as as New York fancy expensive Rita apartments was the same thing for Bob in the markets in which you invest what is the single most overpriced asset I agree with the two comments that were made we were talking about Hong Kong earlier and and Hong Kong has a real deficit in terms of land so there's and there's 1.3 billion people in China all of whom want at a far price song the we've done a lot of work comparing the Gateway cities to some rapidly growing secondary cities and and the comparison is pretty stark there's a there's a lot of new development in the gateway cities both in in residential as well as as office and there's not anywhere near as much when you get to places like Atlanta or or Dallas or Denver to a degree in Seattle in other places and so I think the equation is much more in balance when you get away from the coasts and and when you get away from the from the gateway cities and I would just say Eric that in in my sector of the world it's and there's no price transparency now because there's no trades but a couple of years ago with Street retail in New York City in London you know Paris those kind of markets Paris has held up London is you know on the verge of cracking New York has cracked with no transparency and I could never get comfortable you know we looked at every deal there ever was and Street retail it's never been our business really but I could never get comfortable on the pricing end up being you know a lucky call but that that market and now it's no long it's it's but that markets busted it's in the process of course it's it's busting as we speak but there's no lost has resulted that they lost a few bucks I mean I can't up probably not quite but probably probably in the billion range by how much do let's call it high street rents yeah in New York City have to have to come down before that market but they probably have to go you know and I'm not an expert because you you I'd say they have go in half essentially because they had such a at least at least such a David the construction is going up well that's supply and demand they had such a artificial increase in market rents and in our business we don't we kind of see the 3/4 percent a year so you know we've never had that but there was such an artificial estimation of what market rents we're going to and what they are but they're I would say at least half but you have a you think whether this the supply side on the on this street retail in the high street retail have not increased yeah it's only the demand side yeah chris doumitt yeah but but they say today that they valued the buildings on market rents that are unattainable totally completely on they were talking about they were able to rent it two thousand five hundred dollars a square foot forget it and then sell the street retail Saira faith care of it out of the building and make and make make the whole building with fortune it's like selling the penthouse for ten thousand hours a square foot and saying the rest of the units are worth nine this is why the English retail rent system is so sophisticated because you the first ten feet of the exposure to the street you get 200 pounds of square foot and then it decreases dramatically as you go inward in New York when at the peak they were saying 2500 square foot including the basement yeah and the second floor in the second floor and it and it was it was based on square footage it was even more than what the actual square footage was because the state doesn't retail go to the Senate exactly how far or how fully played out is the e-commerce effect on retail at the moment had no impact on it at all let the record show that mm did I coach oh no impact no impact look there is it's very interesting I mean I could talk long and I won't bore people but you know retail a bad mall is hard to kill okay and it takes years and years for it to basically put out a business we had too much small product in our industry the shelf life of a bad piece of real estate in a bad mall used to be 10 years now it's two three years and the one common denominator of a bad mall is basically the fact is it was built two things happen it was built 30 40 50 60 years ago believe it or not and the neighborhood demographics changed or and this goes into the late eighties the developers were building malls on the basis that the growth was going to go up this corridor and it went left or weren't right or it stopped but the realities you can't replicate good real estate and I think we're just cleansing the system were rejuvenating retailers there you know we've had all sorts of things happen with our retailers private equity you know all these guys are my friends so I don't like to insult them but you know private equity put too much leverage on retailers retailers Mis spent on saying you know buying stock tacit levels or or investing too much in technology it's starting to turn and we're starting to see more stability in demand and retailers work their balance sheets and starting to see a level of staples - you suggested I use it I don't - just lies yeah it sounds like it's kind of played out ah listen I'm suggesting that our company is it's it's like anything else you got to look at company by company mall by mall listen we have outlets in Japan and if you made a decision that Japan had no the macro-environment in Japan was terrible now it's gotten better but over the last 20 years you could have made the decision I'm not going to invest in Japan because you know there's no growth the aging population well the reality is you know it worked in our favor because you know people stayed at home and they shopped and they love our Outlet Center so again real estate is so specific decision there's these macro things but the end of the day you could have a very successful company or a very successful mall if in fact you know you have the best real estate in the area and so I do think there is a tilt a little bit less toward e-commerce more toward the physical world but it's a force and it will increase the obsolescence of bad retail real estate quicker it'll that the excess supply will will get flushed down the system and the good stuff will get better and you know I would just occur you know if you want the evidence of that it's very simple we're a public company we report every quarter you can see a company that can navigate its way through this through this you know period of time and you know so it's not don't feel sorry for me okay it's okay we don't okay I didn't think so yeah but it it is it's it's working its way through the system but there is a reason people still want to want to go out and and you know being in an area that will you know that they can shop play work etc I mean that's that's the nature of our society so david has a front row seat yo does anybody else want to take a stab at how fully played out the e-commerce effect on retail is well the only comment I'd have is you ready have had on the street retail like in New York I think the rents are down already maybe 30 40 at least percent probably more to go because rents went up so high that it was crazy and you had all these retailers that felt we had a B in New York we'd pay anything they'd have a flagship operation there the rents have come way down at some point there'll be some opportunities but we are not in an environment today we're number one there's not a lot of distressed right now in the real estate and a closest thing would be some retail maybe where the prices have come so far down but but the other side of it is and prices are high but do you know of other assets that are cheap I mean I don't know do you is anything cheap I I can't think of many do you think maybe oil is cheap or natural gas but everyone's afraid we're gonna produce so much oil and we're gonna not have as much demand over the long term but generally speaking you you name it bonds aren't cheap they're probably the face value is gonna go down as interest rates go up stock market is trading it high it's a little off the art world my god it's insane our team's high-end residential right I in residential my god would it what do you pay guys have paid nine ten thousand dollars a foot for condo in New York so we are in a world because of low interest rates and the fact that we've had asset values go up because rates are low everything's expensive and real estate is no different you know just because we have a full room of audience and presumably there's some interest in real estate we've been so negative over the course of our time up here I think you can also look at some of the niches within real estate that that that could be interesting and and you know maybe they're they're big enough to justify an investment strategy and maybe they're not but perhaps in in you know they might be seniors housing has good fundamentals around it David mentioned live-work-play and there are a number of of new developments that that sort of combine living and and and Manny living with with commercial or office on the on the ground-floor we reviewed an asset recently that that had a first floor of of different businesses and then the ensuing seven floors were organized by professions so you had graphic designers on one floor and software engineers on another floor and there's a lot of collaboration these four young men and women who were out of college and and looking to start their way in the world something like 42 percent of the u.s. population is going to be either freelance or independently employed over the court is projected to be over the course of the next five or ten years or so so I think that they're they're manufactured housing is an interesting area as well there's there's a bunch of modular technologies that that may help to reduce the cost of construction that that that might offer some opportunities as well but just in an effort to inject a little enthusiasm into the into the dialogue I want to mention those I love it when people try to get positive can I get negative again why not no anybody have anything to add to what Bob just said well listen I think again it's like that you get in these scenarios and people like to talk they're booked but I would tell you that many public read if you look at the value these are the other public securities you know are on the value and of the spectrum now we're not sexy so what causes that the job III think it's it's an appreciation that it is cheap and that and ultimately new capital has to come into the market right we had a lot of Japanese money that came in and that's come out why don't we see more tape private transactions and well we've seen a lot we've seen a lot in in in my sector right we the French are buying the Australians to get London and the US so don't expel try to explain that later what you know buys buying west for we've seen Brookfield by General Growth Brookfield bought rouse I mean so there is more and more privatization his marine isn't it interesting that the the streets perception of the nav of general growth was 29 to 30 and and they're paying twenty three four yeah well because that say it says is that you've got a smart buyer that's taking advantage of the situation right I mean there's nobody yeah the only guy to challenge him is meet you that move and I yeah I didn't feel like it so cuz then I would Bloomberg you know i reaiiy see read these bloomberg articles the retail apocalypse and makes me see if you were more positive I would have bought general thank you I only want to make one small comment about retail and I really don't know much about this field but if I enjoyed the experience of going into a mall my kids don't even know how to spell mall they don't go they don't use it they buy it all through the internet so either is a generational or a bit had a habit change which is taking place but I think it may have to restructure the whole concept of retail and mall experience what happens so ecommerce provides us with a pretty darn good illustration of what happens when real estate meets technological disruption mm-hmm what happens when self-driving cars show up how old are you how old am I yeah how old do you think I am no self-driving cars do you think they're that far away yeah what about the rest of you guys I disagree I think it's coming faster because all of the technology that's occurred has moved faster than originally projected and it's going to have an impact I let's take parking garages okay mmhmm yeah that's what I have in mind it's been a business but I think its future is has some doubts because when you have more self-driving cars you may have a lot less need to park in fact as people are developing new projects and I've talked about office and you have to build a certain amount of parking the developers are designing the buildings so they can get rid of a lot of the space that they're putting in now and convert it to office or other uses for what is now a parking that'd be like a shadow supply yeah I I would just say yes no I I would just say from our standpoint when we historically had to park five to five to one essentially five squared feet for each square footage we'd have to five square feet we'd have to provide one parking space so the and again if you think about the suburban mall it's usually the best location in the better demographic you know by and large so suddenly we have these parking fields that are way underutilized and it's almost like for us if that happens actually it makes you know the number one complaint that we have at the mall today and this is counter-intuitive and this is what actually you know think about it so the number one we do all this customer research the number one complaint counter-intuitive is parking now it since all these malls are vacant and nobody goes you would it's hard to it's hard to understand why that's the number one complaint but so suddenly parking becomes less of an issue right because people get dropped off that may you know that's a little more who knows but the realities were way over parked and we're got the best real estate location in these cities and so it gives us a good to Sam's point you know if there's no demand what do you build but my you're creating a lot of new multi-family locations you got it locations that previously didn't exist and they're now gonna be very much there because they're gonna be very attractive right but it's called supply I agree so but we have all this land and know this goes back to the sears situation you know one of the great opportunities we have is that reclaim you know all these Sears stores or you know you know we have a simple example in Buckhead Atlanta where we have a Saks and a Nordstrom and we had a belt department store Belk it was a high-end mall so Belk kind of a nice department store but more moderate we're taking that back and building again Sam's gonna beat me up for supply but in Buckhead is a unique piece of real estate so we're building a Nobu Hotel Nobu restaurant office Lifetime Fitness which is a fantastic company hundred thousand square feet and they're co-working space and their sports space is yeah nice and again he didn't he gave me he sort of gave himself one out by saying pretty early on that he was talking his book yeah I was talking my book but I again and that's what that well I you know I have to defend myself I wasn't asking you to defend driving I did answer it but then I went a little bit about self-driving cars I think brings up you know the question of whether how relevant or whether central business districts will remain as Primus primary as they are or whether you can see the development of satellite areas you know sort of prime suburban satellite areas where you can replicate the office and residential in the park because you don't need transportation arteries because you you can be more self-contained whether you're in a self-driving car driving yourself you don't want to most people don't want to spend a whole lot of time in vehicles and um and and so you could well see a bit of a hollowing out of some of the central business districts and the rise of some prime suburban areas as well because you have more land available to develop the right infrastructure I think that's the alchemists word hmm more land available and when more land is available and money is available guess what happens the s work you got it yeah no no I didn't want to talk too much about self-driving cars because this is a realistic panel oh no no what happens to real estate with self-driving cars Neil brought up the point about parking garages for example what I'm trying to tease out is this idea that there's technological change and it creates disruption and different in designs we've seen it happen in real hammers and now is that an app called pumpkin hero which effectively tells somebody who's coming into the city where their spots available has dramatically reduced the monthly rental in parking structures that's a big technological disruption that effects cash flow I wouldn't worry you know I think that you know the self-driving self-driving industrial vehicles trucks is for sure much much much closer and there's much more economic justification for that than the self-driving car self-driving car you know I mean remember what was it three years ago when everybody was zip carrying everywhere funny it's gotten very quiet ha all of a sudden everybody doesn't want to share occur there's no economics of driving economics to sharing a car but if you're a a trucking company and you can't find drivers and you in effect have an interstate that's already in place with which you can build a self-driving structure that's much more just a and much more likely to be a factor going forward than the self-driving Hut I would say that the other impact of obviously I believe more in self-driving cars and maybe you do in terms of how fast it happens we'll see what happens but the other impact is I actually think it's the reverse I don't think it's gonna I think it's gonna help downtown areas because it's gonna be easier to get to work all right if you don't if you don't want to take the train you can get you know you get there you don't have to drive be easier to for people to double up and do it so anything it helps downtown's so now what we do do in order to accommodate the need for ease of transportation is build cycle rooms and showers for residents of the building the building so the storage room for bicycles in our buildings in Manhattan now much bigger huge we're talking about close to thousands that's a huge problem as huge problem but on the other hand the technological advancement is changing the way in which office users are basically utilizing the space the space worker has now shrunk from about average of about 200 and in some places down to a hundred square foot per turn employee the supply coming the server the server rooms have disappeared the package rooms have disappeared the cable rooms have disappeared all this technology is really making superior usage of the veil into existing spaces of office buildings so if it's not necessarily self-driving cars Neal you think it might be Sam you disagree what is the next technological disruption to confront real estate the I'll give you one thing to think about since uber and lyft have become so prevalent the use of public transportation across the country in every single market is down which is somewhat counterintuitive but literally subway usage in New York subway usages Chicago Bart in San Francisco everywhere public transportation is down five to eight percent what does that mean and do we have and what about how many highways we have and you know we talk about self-driving cars are gonna make public transportation even more obsolete what's the impact of that gonna be and how is our society gonna take on they because with reduction in demand and the public supply public situation they're not gonna build as many subways then what do you do I think that is an excellent big question with which to leave our audience as we wrap the real estate outlook panel please join me in thanking our panelists for their time in fact [Applause]

Channel: Milken Institute

Views: 38,713

Keywords: real estate, investment opportunities, global conference, milken, miglobal

Id: byOOqdXk3Uk

Length: 58min 57sec (3537 seconds)

Published: Fri Jul 06 2018