|Adam Spies, Senior Managing Director, Eastdil Secured L.L.C.; Neil Luthra, Highgate Holdings; David Schonbraun, Co-Chief Investment Officer, SL Green Realty Corp.; Scott Alper, Partner, The Witkoff Group; Avi Benyasz, TPG Capital
Ofer Yardeni, Managing Partner, Stonehenge Partners
On the longest day of the year The Friends of the Israel Defense Forces New York Real Estate Division gathered on the rooftop of the ‘Olivia’; The luxury apartment residence owned by Stonehenge Partners. The FIDF initiates and helps support educational, social, cultural and recreational programs & facilities for young men and women soldiers of Israel who defend the Jewish homeland. FIDF also supports the families of fallen soldiers.
This evening The New York Real Estate Division and Stonehenge Partners` hosted a panel moderated by Adam Spies, Senior Managing Director of Eastdil Secured LLC with panelists: Scott Alper, Partner of The Witkoff Group; Avi Benyasz, of TPG Capital; Neil Luthra, of Highgate Holdings and David Schonbraun, Co-Chief Investment Officer, SL Green.
Spies started off the questioning by asking David Schonbraun is the market overheated. Are the values getting ahead of the fundamentals?
Schonbraun stated simply – no – values are supported by several things: the strong economy of New York City, a better employment picture here in NYC than the rest of the country, rents are increasing, absorption is going down and these factors are driving values to increase.
In addition you have a low interest rate environment where people can buy real estate and get a yield. A lot of capital is moving to the best markets.
How much are hotel values up off the bottom?
If you looked at the market today you can compare NY to the national market. I would say the national market you are probably off 30% from peak values. In NY you are off about 25%. It’s a function of the REITS.
There is a lot new development on the horizon- focusing on NY for a minute how is all that new development effecting your underwriting?
Well you’re off 25% of peak from 2007 values and from the supply picture you have 75,000 rooms in NYC and another 8% coming online in the next three years which is a huge growth relative to the rest of the country where you have on average about 2% growth. So you have to be cautious but you have about an 8% growth to underwrite and a 400 million sq ft office market. No one else in the country has that kind of demand. There re still opportunities in the hotel market now- it’s a function of basis.
Scott you are doing a lot of developing now- you are doing 150 Charles St. Is development justified now?
We like development space where you can get into the ground today meaning over the next 6-9 months where you still have the opportunity to buy construction cheap. We have seen increases over the last 12 months but construction costs are still down and there is still a window to take advantage of getting in at a low basis but that probably will evaporate as we saw in ’99 and 2000.
Where can you find sites today-what are the areas to look at?
On a condo front we are looking to build where we can build for high margin. As an example on Charles St where there is a large margin between basis and sell out. We also think rents are compressed today so if you can get land at a lower enough basis and take advantage of the cheap financing either as 80-20 financing or straight conventional financing we think there is a lot of opportunity out there.
Based on what you see land trading at-do you think the market is overheated?
We’ve seen land bounce back quickly that’s why we are interested in a lot of off market opportunities such as when we are coming in and recapitalizing because the sponsor does not have enough equity to just build it.
Are all the funds chasing the same product- Is there enough product to go around?
Well TPG is a private equity fund so our focus is a little different. The world is pretty big as far as distressed goes. There is much less distress in NY. Distressed players are not wasting their time in a market like NYC . They are spending their time in Western Europe, and other parts of the US. Ireland, Spain, The UK.
The hedge fund players are primarily debt fund players-short term holds-vs. long term turn around situations.
Do you think the market has recovered too fast?
I think that is true to some extent in the capital markets. Debt and equity in some cases is probably ahead of fundamentals-maybe not in NYC but in other parts of the country.
Everyone here has said NY is not overheating-is now a good time to get ahead of the curve and make some bets in the secondary markets?
There is the potential to look else where in interesting pockets throughout the US in different sizes, but there is a lot of concern
at TPG of what is happening in our system right now, such as the debt we are taking on and what that could mean to NY and the country as a whole.
More or less distress coming.
Everyone agreed more distress is coming.
Moderated by: Adam Spies, Senior Managing Director, Eastdil Secured L.L.C.; Neil Luthra, Highgate Holdings; David Schonbraun, Co-Chief Investment Officer, SL Green Realty Corp.; Scott Alper, Partner, The Witkoff Group; Avi Benyasz, TPG