I've been sitting here looking at the screen and trying to get a blog post down. But after two-and-a-half-days of non-stop meetings (and a few cocktail parties), I've finally decided that my brain is just too much mush for me to get a coherent post written.
I have a few ideas I'd like to explore in the next couple of days after I've had a chance to let them simmer and the opportunity to review the notes from my meetings. I finally did get the input I was looking for on the investment sales market. The problem is that it's really hard to encapsulate what's going on in a few lines. The biggest takeaway is something we knew coming in--the deals getting done right now are on core assets. Investors love single-tenant net lease deals, as well as grocery-anchored strip centers. They don't like class-B and class-C centers and properties nearly as much. They are wary of power centers and lifestyle centers. But beyond that I heard a lot of conflicting information. Some people told me that financing is becoming available from all sorts of lenders, albeit with very stringent conditions. But others said that capital markets remain frozen. People have different predictions as to when deal volume will rebound more fully and a market will emerge for riskier assets. There also remain concerns about the long-term health of many types of banks. And nobody quite knows what to make of the CMBS market. Meanwhile, LIBOR is up of late, harming some floating-rate loans, but Treasury yields are down, making other sorts of financing cheaper. I was even in one meeting where two people from the same firm were sparring about whether financing was available or not and whether the current climate was the best ever for buying distressed assets or whether the early 1990s was better.
Something else that's kicking around my brain is the concept that the Great Recession has fostered a "back to basics" mentality for a lot of owners and developers. That makes sense, of course. In the heady days some people got away from operations. Or entities ended up owning malls that really had no business operating retail centers. That's created opportunities for the best owners and managers to grow their businesses. But it seems like it's also a time to try and figure out what the next generation retail real estate concept could be. It's time to more fully embrace technology, build centers that are experiential and create retail environments that are adapted to the changing ways people shop. But who is going to lead that charge? Who are the developers that are going to champion the cause of reinventing retail real estate? Would it be a missed opportunity if that didn't happen?
Lastly, I want to take a stab at making sense of distress. Over the past two years it has become abundantly clear that the distressed real estate market is not going to unfold the way many thought--with a flood of properties and opportunities hitting the market at once. Funds targeting distressed real estate have made far fewer purchases than they expected. I think some of that stems from the fact that distressed is actually a rather amorphous term. When you drill down, people tell you it's different things. Are you going after notes or properties? Are you trying to buy what is actually not a distressed property but merely trying to steal a good property from a distressed owner? Does anybody want to touch the really ugly stuff--the centers with 100 percent vacancy that need a lot of time and work before they generate healthy cash flow?
So I'll try to tackle this stuff and other thoughts in the next few days as a way of extending our RECon coverage. Stay tuned.