Monday, October 5, 2009

Real Estate Moguls’ Views on CRE

On Monday, October 5, 2009 Bill Rudin, president of Rudin Management, and Steven Roth, chairman of Vornado Realty Trust, shared their insight and outlook on the real estate market.

“There is not doubt this is a slow motioned recovery that will take longer than most have anticipated, “ said Roth. The bottoming process can probably take 2 years, or longer than that according to Roth

There is a hint of optimism, however.

“In terms of commercial real estates (CRE) in New York, we are seeing activities,” said Rudin. According to Rudin, 12 major leases signed for properties of over 100,000 square feet in the third quarter 2009 compared to a virtually dead market 6 months ago. Among the lessees were CV Starr, Hank Greenberg’s company, Gaps, etc. Obviously, these came at much lower rents, 30-40% off .

Roth acknowledged the drastic reprising in CRE but stressed that the psychology had  improved.

“But the psychology has changed. The brokers and the tenants now feel that we are in a bottom….. signing long term. When the tenants want to go long term, traditionally that is the bottom. We are in the beginning of it, we are at the heart of it ,” stated Roth.

Rudin pointed out there are also “flights to quality . “ You are seeing people moving from 3rd avenue to Park avenue, from other part of the city to 6th avenue…”

Roth also referred to the history. The last cycle which was in the 90s lasted for 18 years, peak to peak,1988 to 2006. The cycle was followed by a period of vicious down drift that typically lasted for 2-3. Roth explained, “2006 is the top, we are now in 2009, there has been a flood of what they call reequitization in the public market…. the public market reequitized. The unsecured debt market has come back and they are roaring back. We just did a $460m deal 10 days ago for 30 year......” According to Roth,the re-equitization is typically the time to do bottom fishing. The base building typically takes 3 to 5 years.

Rudin and Roth also touched a little on the role of TALF plays in CRE. Both of them welcomed the move of the government, especially when TALF was extended from 3-year-loans to 5-year-loans

VNO is in the TALF queue. The company has $2.6 billion.

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