Last Thursday - an archetypal rainy and windswept late October afternoon in New England (think orange and red leaves underfoot, Finny and Gene walking to class, etc., etc.) - I attended the annual Symposium offered by the Real Estate Council of Boston College . In attendance, perhaps one hundred and fifty lenders, developers, investors, lawyers, brokers, professors and priests. As someone that participates in a fair number of these things, I can't say enough good things about the quality of the presentation coordinated by Cushman's Rob Griffin and the balance of TREC members. Even the welcoming remarks - in this case by BC President Fr. William Leahy, S.J. - included a thoughtful recognition of the state of the CRE market (having, in the past 5 years, acquired more than 50 acres of prime real estate, commenced construction of a massive new academic building and committed the bulk of a $1.5b capital campaign to the construction of student housing, it's clear this guy knows his way around a performance bond). His take - buy, never sell (not terribly surprising given his Boss' investment horizon).
The main event - former Secretary of HUD Henry Cisneros' comments on the state of the CRE market. Whatever your politics, Cisneros is a vastly powerful intellect and commanding speaker. In 35 minutes (speaking without notes that I could see) he forecast the next 30 years of commercial real estate. To survey my scribbles - he is bullish on multifamily, contrasting the plight of countries suffering population decline (Japan, Spain) with the explosive growth expected Stateside (376mm by 2030; 400mm by 2050). The first Baby Boomers will turn 65 this January, with many down sizing to rentals (apparently the new trend in getting gray is "Aging in Place" - bad news for Arizona). If Generation Y will just (at some point) move themselves (and their Xboxes) out of their parents' basements at rates that even approach historical norms another 1.4mm people could be looking for a place to rent. Combining these factors with increased immigration (something like 82% of new U.S. immigrants rents for their first 5 years in this country) and lower home ownership rates (Barney Frank's victory notwithstanding), Cisneros' math leads him to a need for the construction of over 2 billion square feet of new multifamily by 2030.
However, the former mayor of San Antonio (as an aside - see this story on that city's growth during these past few years) is significantly more bearish when it comes to other asset classes - specifically office and retail. As far as retail goes, he's had overseas investors tell him they think we're 30% overbuilt (I say we are not a foot more than 25% overbuilt, but that might be the Patriot in me). The flat, jobless recovery; sector consolidation; internet shopping - the cards are stacked against retail as we near Christmas.
Some parting highlights - Cisneros doesn't see the home mortgage interest deduction going away (you could tell this just killed him to admit). He points to strength in specialty sectors like medical and assisted living. (Did I mention the first Baby Boomers turn 65 this January?) Infrastructure of all kinds is booming - Cisneros relayed an interesting trend - internet purveyors (think Zappos building distribution sites in (or adjacent to) airports (that's how you get your wingtips the next morning). Alternate energy was another sector where technology will drive the need for growth - Green building and retrofits are now the norm.
I have more notes, and will recap the balance of the conversation in a forthcoming post - including a great panel that included the Davis Companies' Jon Davis. Again, congrats to TREC BC for a great event.
By Matt Clark.