Global Property CEO Florida Conference notes

Call it the sound of collective mourning. Throughout more than 60 roundtable discussions between analysts and real estate investment trust executives gathered this week at Citigroup’s three-day Global Property CEO Conference in Naples, FL, REIT management teams representing all U.S. asset types returned again and again to a now-familiar list of themes and concerns. Stalled transaction activity is inhibiting the market's ability to establish reliable property values, and vice versa. Occupancies, absorption, rents and other property fundamentals are weakening in tandem with the declining job market and shaky consumer confidence. REITs seek to preserve capital by cutting dividends, writing down investments, trimming costs and canceling development projects. And perhaps most urgently, highly leveraged firms are still trying, with limited success, to navigate the frozen flows of capital markets, refinance or retire debt -- and at the same time, try to predict when to make a well-timed re-entry into the acquisitions arena. Citigroup research analyst Michael Bilerman conjectured that the industry may have entered the last of the "five stages of grief" -- acceptance -- after the REIT sector's initial reactions of denial, anger, bargaining and then depression following the financial crisis that first gripped the industry last fall. "I think we’ve now gotten to the acceptance phase," he said. "There are more people who accept where things are now. Companies are focusing on what needs to get done, on their core business and balance sheet ... there's a little more hope than utter and complete chaos." Even so, it was challenging to detect hope among the veteran CEOs in attendance. Interest rate spreads are still way too high for the economy to recover quickly and property prices are at a 10-year low, stated Steven Roth, CEO of Vornado Realty Trust (NYSE: VNO), owner of a diverse mix of New York City office buildings and retail properties in the Northeast. "We’re in a period where asset values are deflated, and that has driven out all normal-course lending because nobody wants to make a loan; nobody knows the value of the collateral of what they’re lending against," he said. "We say frequently, one of the things that makes a bottom is stupid, stupid, stupid low [implied] asset values, and we’re getting to at least the first or second ‘stupid.’" Still, Roth predicts the "greatest opportunity in our lifetime to buy things extraordinarily cheap" will soon be within sight. "If people have the liquidity and the smarts and intelligence to navigate, I think there are going to be some incredible buys whether in the public or private markets. There’s going to be more good quality assets available than we all combined have the capital for. There’s going to be three or four years of investing -- there’s that much product available. There’s more product than there is capital now, and that will continue for years." For more information see: http://www.houstonrealtyadvisors.com/ or http://www.houstonrealtyadvisors.net/ or http://www.edayres.com/