Investment sales dilemma: Anyone want a building? - Washington Business Journal:

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“I’m in London — terrible snow storm,” Kamm reportes from his BlackBerry. “In dinner meeting in Knightsbridge withclienrt — I’m searching for capital in the parchefd landscape that is now the Very, very unsettling. I’m off to Frankfurt later this So goes the new normal for commerciakl real estate types in the midst of the worst financial crisissince 1929. Better food and drinkm than an Anderson Cooper but adisaster nonetheless.
Lickinb their wounds after a painful2008 — when deal volumed was down more than 77 percent from 2007 — the locapl commercial real estate industry is now poring over tea leave s to decipher who the next wave of buyers will be. Firstg the good news: Foreign investors just anointed D.C. the top destinatiomn for their real estateinvestmenrt dollars. In snaring this honor, the country’s politicapl capital toppled NewYork City, the quickly fadingt financial capital of the world, from its Savor the moment. The bad news is more It’s not at all clear who’sa going to buy.
Real estatre investment trustsare reeling, privatd equity is doing better with the “private” realjm than the “equity” realm, life insurancer companies are on life support and institutionaol investors have watched their investment values Buyers who do have the cash and wherewithal to buy are still sitting on the sidelines, waitinyg for the right numbers to roll in. For who works with ’s real estated investment banking group in that has meant his only clients right now are banksa looking to make sense oftheid books.
“We’re helping them value collaterap andvalue notes, because they have no idea what they’re Kamm told a group of localo real estate heavyweights at Jones Lang’s Jan. 29 Capital Perspectivr breakfast. “Our business is back to 2003 — financingv [subordinated debt], restructuring loansw and recapitalizing projects.” And even that is not as easy as itonce was. “Fodr every billion dollars worth of loan assets we look at fromwillinvg sellers, guess what percent actuallyg has a market?” Kamm Somewhere between 5 and 15 percent, he said. “The othetr 85 percent has no bids.
” That hasn’ft quelled the curiosity aboutwho someday, buy property or debt again. Until this financial crisisa obliterated all notionsof predictability, it used to make sensde to look backward to predict the future. Last investors spent about $8.5 billion on commercial property in the making it the second most popular market inthe U.S. and sixt h in the world, according to Real Capital Analytics. Five of the sevebn most active of those buyerswere Washington-area firms, including and . Together, those firms bought only six propertiesein 2008. There’s no guarantee that any of 2008’s buyersz will be 2009’s buyers. WRIT, which closed on 2445 M St.
NW in got a good deal — and was able to take over a favorablee loan from the private equity seller but likemany REITs, it probablhy wouldn’t have done the deal if it hadn’gt already committed to it last spring, beforde the crisis hit. “A lot of it goes to makint sure, first and that you have capital for your existinbgobligations — debt coming due, normaol operating capital for capital [improvements] and brokerage commissions,” said Tom WRIT’s senior vice president for acquisitions.
“Youj have to have all that firstr and foremost before you can think about buyinganything Still, WRIT is trolling the market and will bite if the righr deal comes along, Regnell said. REIT stock pricews as a whole dove 41 percentin 2008, and 15 percengt so far in 2009. Foreign for the most part, are in no bette r position, according to market “German institutions are completely crushed; the U.K.
institutions can’gt make heads or tails of this market; Soutu Korean funds are illiquid because they have such huge exposure to Japanesre REITs withhuge losses; and, with the price of oil at $41 a Middle Eastern investors need to hang on to their said one broker, who asked not to be name lest he paint too dreary a picture. Open-ended institutionao funds that allow investors to withdraw their monet are out of the markettbecause they’re instead focused on sellinvg assets to fund thosre redemption requests, the broker said.
Private equity groups that aren’rt hurting — privately, of course are demanding higher returns than can be foundd in Washington real especially without access to lots of debt to push thei own returns intothe stratosphere, brokers say. Still, they’red raising capital and waiting for prices tocome down. like the D.C.-based , are taking a cue from Kamm’a bank clients. Its real estate division, , is not interestexd in buying buildings now just loans. It’s much more profitable, said Chip a Carlyle Realty managing director, at an conferencd on Feb. 3. Others say there are reasons tobe hopeful.
“Buriedr within the generalizations, there are a few investord that can step forwarsd anddo something,” said John Kevill, a Jones Lang managing director for investmentt sales. “That’s the key to this every asset is looked at differentlh and every investor classhas exceptions.” Two of the most activwe buyers last year — D.C.-based and J Streegt Cos. — are looking. Carr is “selectivel y pursuing new office and multifamilyinvestment opportunities,” but believews the pickings will be better later this year as lendersx and partners pressure overleveraged developers to sell, said President and CEO Oliverd Carr III.
J Street CEO Brucw Baschuk says his firm is steering cleard of broken development deals but migh t pick up one or two Class A assetsthis year.