ULI Spring Meeting Notes| Philadelphia| April 2016

May 20, 2016

Successful Suburban Development

  • Massive wave of people ditching cars, moving to more walkable urban downtowns. True-more people doing so, suburbs continue to grow.
  • They are evolving to serve as economic hubs formed around office/industrial parks, shopping malls and lifestyle centers.
  • Many millennials prefer the idea of living in an urban setting. They still choose suburbs-they are demanding those suburbs be dynamic communities. As a result, more suburban communities are developing town centers and areas that resemble urban downtowns.
  • Developers are responding by providing diversity of housing—important to offer luxury housing that appeals to company executives-otherwise difficult to attract corporate headquarters to that suburb.—Ballantyne Corp. Park for example.
  • 3 Washington D.C. Suburbs-enjoyed recent growth in gross square footage development by creating places for gathering and social activities, placing transit oriented development around train stations and expanding transit options connecting neighborhoods to rail stations.

 

Need for Instant Gratification Drives Real Estate Ingenuity

  • On demand economy means goods and services can be delivered by a tap or swipe of the finger. Immediate gratification is what consumers expect. New project-the Bloc-large scale renovation of an aging downtown LA mall into a vibrant mixed use marketplace. Bloc highly anticipate that future customers and close observers of downtown development want to be instantly provided with updates. Ratkovich is documenting on Instagram, website and social media channels-the renovation and public meetings associated with the project.
  • Ten-X. Google Capital funded website for buying and selling properties. Goal is to condense transaction timeline. Typically 6 mos. to close a deal, deals on Ten-X executed in 30-45 days. Goal is not to replace brokers but free them to focus on client. Ten-X is the nation’s leading online real estate marketplace. Founded in 2007, have 1000 employees, have sold 200,000 properties worth over $37 billion. Largest sale ever—Manhattan Towers in Southern California–$96 million for 2 buildings totaling 309,734 square feet.
  • Home Away-on line portal for short term vacation rentals, pose no threat to hotel industry—offers an alternative method of booking travel and broaden menu of properties.

 

Flexiblity is the Key to Housing Design for the Future

  • Greater informality in housing design, greater emphasis on wireless technology, greater diversity in land uses-mixed use facilities,
  • Greater use of kitchen space as the “nesting center” of the home.
  • Seniors aging in place and millennials needing adaptable spaces to suit their lifestyles.
  • For millennials, more outdoor living space, open floorplans-particularly in the kitchen. Some rent out part of their space to help cover cost of ownership.
  • Micro units in NYC-300 sf-furnished with multi use furniture, that takes up minimal space and serves a variety of purposes. Amenities include fitness centers, retail space, bike storage and laundry rooms.
  • Live Large, Carry Little—Futures Company exec thinks this is the new norm—redefining consumer priorities. People value the ability to forge relationships over the ability to own products, want greater social connections with people—technology provides this. Smart phones outrank cars in importance, enhanced ability to rent or share, access to plenty of free or inexpensive services.

 

William McNabb—CEO of Vanguard

  • With political and economic uncertainty, coupled with fully valued equity markets, you will get an increase in volatility-expect a period of lower returns on your equity investments. Over past 80 yrs. returns on equities averaged about 10% per yr, after inflation equates to 6% real return. Over next decade Vanguard anticipates returns in 5-7% range, real returns in 3.5 to 5.5%.
  • Recovery is unlevered-consumer slow to borrow, decline in leverage is seeing debt reduction rather than credit availability.
  • Cyber Security-98% of transactions are on line, spend $100 million each yr on this security type.
  • Lots of bad guys-hackers, cybercrime guys in Vanguard’s operation center see over 1000 attacks per day.
  • People are paying a lot of attention to this. Gov’t agencies are coming together on this and Vanguard, T. Rowe Price, Fidelity are working together and cooperating, all about safeguarding their investors $.
  • 2 Factor Authentication-enter password and on another device, enter code that verifies within 10 minutes—better technologies are coming, but this is best they have now. Middle innings in terms of knowledge.
  • Vanguard is the largest 401 k money manager in the world. Boomers retiring now, theory that they will not put pressure on the market. Thinks people will live as long in retirement as they did working. Equities will be as important as diversification. Have been more focused on accumulation rather than decumulation—will see plans coming out to help us with this. How to make your money last is going to be important going forward—different from defined benefit plans available previously. Wall Street rigor and mid-west values is their mantra—put client first-then treat all employees with the Golden Rule. Want employees that are coming for a career, not just a job.
  • Book—The Art of Leadership—George Manning and Kent Curtis
  • Leaders should clear the way so everybody can do their jobs. He assumed CEO on 8-31-08—told employees they would keep their jobs, focus on the client-had town hall meetings-met with clients in the field, tried to keep everybody calm—leap of faith that we would come out of this crisis. 108 colleges and universities within 2 hours of Philly. 15,000 employees, 10,000 in Philly, operations in Scottsdale and Charlotte.
  • His view of millennials—positive, lots of creativity and passion, more skeptical about investing in the market but are willing to save-paying down some debt.
  • Need to simplify tax code—would reduce uncertainty among businesses.

 

New Residential and MPC models that assure success—moderated by Gadi Kaufman

  • Stapleton-Denver-introducing new products to reach new buyers—higher density.
  • Be disciplined in your segment.
  • Green Valley Ranch-planned for 75,000 residents, targeting active adults, detached units, Anthem, Inspiration and Whispering Pines—55+ Denver master planned communities—smaller plans, don’t forget rentals—can increase absorption.
  • Imagination Homes by David Weekley—1st time buyer focused, simpler floor plans, standard finishes. Central living – hi density detached and attached, densities up to 25 units/acre
  • Encore-age restricted 55 and age targeted, single level plans with open design concept, Lifestyle Director.
  • Marketing—secret shopper, web linking process-customer sign up, can track customer, location tracking software and project beacon—-point is that data is the future—more focus on consumer behavior—watching retail world trends.
  • Innovation-takes time, involves failure, millennial workshops. Millennials-community based, lifestyle driven communities—mixed use, renters, lofts.
  • Renting by choice—they can afford to buy, need better design for lifestyle rather than by legislation.
  • Amenity ideas for younger audiences—MF developers have figured it out—look at their amenities. Using rooftops as cool gathering places.
  • Brambleton in N. Virginia – funding public art—creates value, different experiences.
  • Woodlands-Houston, Texas
  • Tejon Ranch-driverless cars—looking at spaces, working with regulators, rights of way, etc.
  • Google Fiber—what’s in it for you? work with local utilities-future development and millennials—complete master plan with technology.
  • Engaging the community in problem solving—do it early on—can anticipate future opposition. Know more about the consumer—your customer.

 

Development Opportunities in Shared Space

  • Co-housing, car sharing and micro unit housing are ways consumers are seeking to share the environment they occupy.
  • In D.C. near the Shaw metro station, a new multi-family building, Oslo, developed by Ditto Residential, is a design targeting Craigslist demographic—crowd that wants to live in D.C. and sees finding a group house or multiple roommates as a solution providing affordability. 9 units—33 bedrooms, 3 and 4 bedroom units—3 bdrms are 970 sf, 4 bdrms are 1400 sf. All residents have their own private space—bedroom and bath, plus shared space—living room and kitchen—helps reduce rent and fosters community building. Units have walk in showers, stackable washer/dryers, roof deck, 3 off street parking spaces for rent.
  • Hotel sector—young developer thought 1 size fits all in hotel industry was silly—all had a desk and couch and elements that took up space. Thought hotel could eliminate these and have common areas for conference work area, pitched to hotel group-Hyatt I think, they developed a project based on his idea.

 

Product Council Market News—Resort Recreational Development

  • Yellowstone Club and Big Sky—turning to the membership to sell properties, ski guides are major sales force.
  • Aspen-sales volume down 40% due to energy related issues.
  • Dallas housing market—can’t build homes fast enough-job growth and population growth outpace supply, 1.5 months’ supply of existing, 2 months of new—40 day average on the market, focuses on the $200k to $350k and over $750k.
  • Durango Mountain—High end buyer is not there—some is oil/gas last 6 months, normally would be seeing demand for hi end homes.
  • Hawaii-4 Seasons resort–$1400-$1500/night, feels a softening however, not sure if it is a cycle or just a shift.
  • Carolina coast—Kiawah sales are very strong, lot sales are flat—particularly the very high priced ones. Ocean Park–$500k to $4 million for lots.—OP is 70 acre park-looks and feels like a golf course, between the marsh and ocean—has revitalized the island.
  • Some discussion about condos in Charleston, new hotels at Palmetto Bluff and Sea Island—generating new, younger buyers. PB—420 completed homes with 160 under construction. Public programming and events are driving sales.
  • Luxury hotel business is really strong from an operational standpoint.
  • Significant number of honeymoon cancellations in Costa Rica due to Zika influence.

 

Trends discussion

  • Is there a resort product in the shared economy?
  • See clean, more glass, more contemporary products
  • Terraces as a room, more gathering spaces
  • Dog Park Bar—highest alcohol sales
  • East West partners-disconnect parking from condo sales—rent directly from the developer—doing this in d/t Denver
  • Examining young buyer’s needs—functional fitness center with proper equipment
  • More people playing tennis and pickle ball
  • Cultural experiences-cooking classes, farm to table, eat fresh, gentleman farmer-do it yourself.
  • Millennials—Airbnb—is that a resistance to commitment?
  • Demographic trends—will millennials move to the suburbs?
  • Concern about jobs—may not be paid enough to support a second home.
  • Book—Play—Stuart Brown

 

John McNellis—Making It in Real Estate

  • Must Buy it right—all happy real estate deals start with at Motivated Seller
  • If the numbers don’t make sense to you, sit it out. Think of yourself as a seasonal farmer, some good years, some not so good—might do 1 deal a year or multiple ones.
  • Where should you buy?—that matters a lot. Google—shrinking cities in U.S.—don’t develop there.
  • How should you buy?-make sure the Broker is highly motivated—financial incentives are powerful—make sure Broker gets his full commission.
  • If you must fall in love, fall for the numbers, not the property.
  • Don’t sweat the purchase contract. If price, contingencies, closing date are right, proceed. Do your own due diligence—read everything yourself. Learn to walk away.

 

Bob Hughes—“A thing well bought is half sold”

  • Offer a low price, you might get it. Need a cushion, may have to bail at some point.
  • Do not borrow money to buy land. You don’t have to have that land. If you don’t buy it right, you will be working for the seller the rest of your life. Have another choice—a second site in mind.
  • If the seller doesn’t say it, it doesn’t count. Meet with the seller and find out what his motivation for selling is.

 


ULI Fall Conference – October 2015 – San Francisco, CA

November 29, 2015

Brian Chesky—cofounder of AirBnB

34 years old, unemployed artist/designer 7 years ago, living with mom and dad. Told him you need to start paying rent—find a job that has health insurance. Brainstormed with friend in SF-upcoming conference, rented out their room with 3 air mattresses—hence the name.

Aha moment—when put in a challenging environment, see if you can survive, helps you realize your potential—need to be deeply passionate about your work. China has lots of potential for their business—1/2 business today is France and England. Last week had over 1 million guests in airbnb’s around the world.

Charles Kenny—today 10% of the planet lives on less than $1.25/day. There has been tremendous economic growth over the past 20 years due to global output.

Survey—more and more people are saying they are happy with their lifestyle.

Global medium income is $3,650.00, top 10% is $34,000.

Rest of the world is getting richer, great news for U.S. in that developing countries are investing in us and vice versa. Carbon dioxide output is increasing—China is largest culprit. There are still billions of people living lives of deprivation worldwide. There are reasons for hope however.

Jack Uldrich, Futurist

AHA—awareness, humility, action

Trends transforming the world:

  • Wearable technology-Fitbit-Oculus-Facebook bought for $2 billion—shop on line looking at a Nordstrom’s pocketbook for example from all angles and make a decision to purchase right then.
  • 3D Printing—GE printed all components for a jet engine recently. 2017 will have other airplane parts. China is building homes with 3D.
  • Advances in Nano technology—self healing materials like concrete, passive radiant cooling—reducing energy consumption.
  • Robotics revolution-drones and self-driving cars
  • The Internet of things—adding so much new technology—opportunities for smart buildings-10,000 sensors in Paris building—reduced energy consumption by 85%.
  • Gene sequence technology—need to prepare to live to 110-120.
  • Artificial intelligence—computer processing power.
  • Data storage—Amazon and grocery delivery business. Their end goal is that you can get anything you want from them. Have filed a patent for predictive shipping.

Humility—what color is the yield sign—used to be black/yellow—now is red/white, point is that taxis used to be yellow—now UBER-has a $50 billion valuation and all you need is access to an automobile. WeWork has a $10 billion valuation.

Action-take a week to think about the future—read and reflect

Trends—net zero energy buildings—Walgreens, –organic farms, online education, and Nano degrees.

Jack can be followed on Google Plus, recommended reading The Economist—4 times/year publish here is what is coming.

How many bullets can the economy dodge?—Brad DeLong, Ph.D. from Berkeley

Prime age employment rate is 25-54, only 77% employed. Fall off in employment is one half of the baby boom generation. Hope is economy grows and brings them back into employment.

U.S. real long rates—decade ago expected long term rates of 3.75%, Fed believes in secular stagnation, Fed Funds down to 3.5%, will have permanently low interest rates for a long time.

  • Forces for higher inequality still on the march—political counter measures are anemic, large concentration of income and wealth at the top. If income is $121k/year that is top 10% in U.S. Income inequality has been rising—our customer have more free cash flow available—what this means for recreational real estate: Good cycle for us, top has lots more income than we thought and feel relatively flush, have $ to spend.
  • We spend 15% of GDP on food. Technology is a leisure time sink, not a money sink. Rising inequality trend is likely to continue. Valuations would have been bid sky high by historically low interest rates, but we are at the end of a 33 year bull run for bonds—interest rates will not fall any further.
  • Question about how to address inequality?—lots of people who should be going to college are not because they are concerned about student debt. If you make it rich, you should pay some of it back to your university.
  • Drug companies have too much power/control over generic brands.
  • NIMBYS are a powerful restriction on growth.
  • Proposed free public education and rents on intellectual property.

Content Marketing—Toni Alexander—InterCommunications

What has not changed is the need for overarching strategy and storytelling. Content Marketing should be authentic, relevant, intriguing, timely.

Content is a product, develops awareness and sells the idea, establishes credibility/authenticity, resonates with the younger demographic, encourages action.

 How does CM work for real estate? Compelling strategy for the brand, unique value proposition, build awareness, comprehensive story that will resonate with your audience.

Results of good real estate content marketing:

  • Allows prospects to learn before they buy,
  • Gives you a list of prospects that want to hear from you and
  • Can track the results of your investment $ and refine your communications.
  • It is content that can work over time.
  • Case study—Potomac Shores—30 miles south of D.C.—almost 300 sales in 2 years at an average price of $600k.
  • Case Study—Four Seasons Private Residences—very high end in Hawaii
  • Emotional pitch,
  • Cultural/creative—brought in a design expert—designer for Elton John and Jennifer Lopez.
  • Rational/risk mitigating—video and high gloss brochure
  • Intellectual—provide brokers with IPads
  • Results—40% reserved before groundbreaking—61 units total, penthouse sold for $50 million. Strategic partners reinforce credibility.

Not your grandfather’s country club—

  • Adam’s Rib Ranch, (Colorado)—rebranded to Frost Creek—Fred Kummer started Adam’s Mark Hotel—lost his major investment in this property—new owners built 7 cabins btw 2500 and 2800 square feet with 4 bedroom/ 4 baths for members and guests.
  • Weiskopf golf—mountain bikes for members to use, pickle board is popular, wants to be year round club, provide snowshoes for each cabin, jeep for members use, initiation is $15-$20k, annual dues of $5k-$7k.

Tom Benniston—Club Corp.—Acquisition and Reinvention Strategy

Partnered with IA to determine what next generation club would look like. Developed pricing strategy and value proposition—anytime lounges—members come in to relax—like an upscale Starbucks. No more white tablecloth, making them as family friendly as possible with media rooms, outdoor dining and lifestyle features—touchdown rooms—office for day/hour for members. Spending $1to $4 million reinvesting in their clubs.

  • ONE concept—member pays $25-$65/month-gives them a discount for food and non-alcoholic beverages at their home club-members are using more and bringing guests. Simplified process for members to use other clubs—have 27 in Dallas. Other benefits include golf at Firestone, etc.
  • Las Colinas CC-built in 1963—Irving, Texas. Spent $2mil on outdoor space with TV’s, fire pits, interior modernized and more dining opportunities.
  • Morgan Run-Rancho Santa Fe—outdoor dining, motion studio, baby sitting services, reinventing practice facilities—better turf and good music!  Started reinvesting in 2007, $60 million in various clubs—results include more members, more revenue, better EBITA—unlevered cash on cash of 15-20%.
  • Bay Club has 24 properties in California—mainly fitness centers, country clubs, and swim/tennis. Started as Fitness/Athletic clubs-very price sensitive. Fitness platform is their base—maybe 5000 members-ages 30-55, modern mom, creating great social networks. Cost from $150/month all way to $25k initiation for exclusive country clubs.

New Ways to Deliver Successful Master Planned Communities

Westrock is the new Meade West Vaco. 3 communities around Charleston—East Edisto, Summer Corner and Springs Grove

Lifestyle is key—partnered with Clemson’s Master Gardner program, makes their community real, authentic and credible. Have flexible areas like pop up tents,, food trucks and farmer’s market. Making memories for families, cobranding with YMCA, repurpose the clubhouse—cooking kitchen—lots of events for stakeholders.

Harvest communities, (6 in Calif.)—common theme is food and edible landscaping, community gardens, rich programming and strong community partnerships. Master gardening programs, lifestyle director. Housing is secondary, all the other stuff is what is important. A lot of resources are already in place so no real need to spend lots of $-find partners as resources.

Note—go to Nexton website and Next Door—privately owned web platform.

Summer’s Corner—people are starved for human contact—wine and food events for stakeholders, Info center café—welcome center-capitalized on Charleston foodie reputation and brought in restaurateurs from there.

New ways to deliver product and segmentation:

Insist on product innovation, must relate to existing surrounding community. Roofs are large open spaces that are being utilized more for events, etc.

Seeing some townhome rentals as opposed to stack flats—2000 sf, getting density of 16-20/acre—looking at sf/acre in Calif. Today’s renters are tomorrow’s home buyers.

Emerging Trends 2016 report identified Charlotte as a market to watch—reflects desires of millennials and other demographic groups to gravitate to 18 hour cities for job opportunities, urban lifestyle and amenities!!!


ULI Fall Meeting in NYC – 10/2014

November 4, 2014

Recreational Development Council—Gold Flight

Speaker David Norden

  • Consumers are looking for the “smart buy”, “intelligent consumption”. Looking for utility—they will use it –dealing with an “uber” informed buyer. Baby boomers are managing real estate like investments—want safety and low risk.
  • “Truth telling” in the sales process—less selling and more managing the process.
  • Focus is on well being, health and happiness, life long learning. Diet—where is the food coming from—local is 1st priority.
  • Spiritual connection—emphasis on yoga, philanthropy—looking to give back.
  • Programming—family is the new golf. 2nd home communities are becoming primary homes due to people being so busy. Gen X Mom’s coordinate everything—moving to 1 stop shop amenities—simplified amenities with intensified programming. Golf is not dead—more vineyards and open space in communities. “A” properties in “A” locations is working for the high end—there is a downsizing of product taking place. Completed, ready to move in product is selling. Boomers wan it now, custom is too time consuming.
  • Big push toward contemporary—brighter, fresher, cleaner, modern. Outdoor living is popular, simplified ownership is the way to go.
  • Who is buying? Gen Xer—35 to 50 (Martis Camp—Tahoe)—still about family, boomers want to leave a legacy. “drive to” is desirable—utility of home/community.
  • Marketing today—need to hit all the avenues, not great time for pre-sales, need to build confidence and show how this is going to work.

 

New Demands from 2nd Home Buyer Prospects

They want to buy—don’t want to be sold, risk averse, want to be listened to, don’t trust sales reps, skeptical of developer. Talked to but not talked at. Come with an agenda-want a choice-don’t like 1 size fits all. Time is their greatest asset, want to see finished product. Don’t hand them a registration form to fill out—give snapshot of offerings-no buffery!

IMI—developed an “establishment clause”—they build credibility and respect by communicating the way their clients want to be communicated with.

1-Establish rapport with client—know everything about them

2-Establish expertise-client knows about the project/community—recent sales activity—planning their visit is vital—build in the expectation as to what business will transpire upon their visit.

3-Establish urgency—shorten sales cycle—offer incentives—“alternative currencies”—not just price. Extended family is engaged in the buying decision now.

Marketing—enlist key brokers-wine and dine-provide them with materials so they can drive clients to your community. Call to action—don’t load your website –need to control the information. IMI does a lot of direct mail that is highly targeted, state of the art visuals, created an app for Martis Camp—when sale is generated, homeowners are in the know.

Full time SEO—must keep website updated, it changes constantly, virtual tours are critical, role playing is key, relationship marketing and ask for referrals…..

 

Future of 2nd Home Communities

2015-challenged economy-multi-generational-emphasis is on creating a new brand.

Hualalai built a beachview restaurant and pool with a bar–$150 million in sales this year with average price of $10 million. Always about the experience. Believer in the grand opening concept, soft programming is a key to being successful.

Costa Elena-Dreams Las Mancas-Costa Rica—emphasis is on FUN! Upscale but not threatening.

Harry Frampton—E/W Partners

  • In early 2000’s decided on different track from Vail Resorts and Beaver Creek projects. Thought the new resorts will be in urban cities and college towns. NYC—sports, theater, parks, etc. People are moving to urban cities for 2nd homes. Denver-you don’t need a car, has 100 miles of bike trails without crossing a street.
  • Charleston—downtown is a fabulous resort with restaurants, college, culture, etc. More people want to be part of the city. College towns like Boulder and Chapel Hill are flourishing. We want to be around younger people where there is a vibrancy—you will live longer.
  • Milennials don’t think beach/mountains as a resort like their parents.
  • Financing is still difficult to obtain for resort projects, founders programs seem to still work, people are buying finished product.
  • Soho House—Chicago—club for 30 to 45 yr. olds active in creative industries—have thousands of members. The Summit Club—designed for millennials—have to be in the digital world—have 30,000 + members. Bay Club in San Francisco—country club without golf. Insperado—low cost club alternative $5000 to $10,000 to join—gives you access to lots of clubs.
  • Lots of focus on yoga and well being—serving your inner needs. Hears that everyone is going smaller with product but has not seen that as a trend.

ULI South Carolina – Capital Markets Conference in Kiawah 9-30-2014

November 3, 2014

Keynote Presentation:  The Millennial Generation’s Influence on Real Estate Demand

by Gregg Logan, Managing Director, RCLCO

  • 1980-81 to 1996 Millennial Generation and their influence on real estate demand.
  • US is older, more unequal, more diverse, more tolerant, less married, less religious, less socially mobile today.
  • Millennials represent 24% of national population—80,000,000
  • Today they are in rental housing—reputation for smaller households, delayed marriages, delayed childbearing, lifestyle centered, more diverse, more liberal, more impatient, economic mobility, frequently changing jobs.
  • 39% likely to live in mid size or big city, 38% say they will end up in apartment, duplex or TH upon their next move.
  • Millennial influence on real estate:
    • Apartments-smaller units at lower $ rents, High square footage in good locations, micro units. MF for sale—demand for “urban” owner occupied housing.
    • Homebuilding—growing influence on for sale market—tension btw urban location and single family detached housing preferences.
    • Community development—reported preference for urban or urban like places.
    • Retail-on line shopping, smaller stores—more like warehouses. Millennials are driving the recovery in MF dev. Next 3-5 years, millennials and MF market—location/neighborhood as primary amenity-place where there is an educated population and growth in professional and business service jobs, lower cost of living, high turnover, less established markets with substantial institutions, hospitals, universities—Austin, Charlotte, Nashville.
  • Millennials do want to be homeowners. Historically, 1st time buyers are 40% of the market, currently are 28%.
  • Millennial population is large but household formations have been weak. 32% of mil have stopped buying from companies that have unacceptable social practices.
  • Single family detached is still the most preferable housing type.

ULI Spring Meeting in Vancouver, April 2014

April 15, 2014

New Communities—the latest and greatest

DMB developing Eastmark—3200 acres in se valley of Phoenix, site of old GM proving grounds, beside Phoenix/Mesa airport which serves 3000 passengers/day, entitled for 15,000 residential units, 6,000 hotel rooms and 20 million square feet of commercial. Home to Apple’s Sapphire manufacturing facility and a branch of ASU campus. Will develop as a city over 20-25 yr. period—largest challenge is how to phase development over this time frame and who are the users for 20 million square feet?

DMB also developing Verado—8800 acres, have sold 2500 homes, entitled for additional 11,500 homes. Separate section—Victory—is active adult community with multiple builders—(unusual)—“nobody want age isolation”.

Lesson learned from downturn—phasing golf course—built 5 holes, will add 4, then 9 over 2 year period—prospects still have amenity to see and play. Not buying land today, lots they still control.

When asked how to control out of line sales associates—developer is using a “choke collar”!!!

Newland—largest private developer of planned communities—owned 25% by largest home builder in Japan. Are in 22 markets, 14 states.

Tool Box for customer intelligence and engagement—database of 30,000—customer database(CRM)—get into how people want to live using customer segmentation, product testing, targeted emails, online and search optimization.

Newland is working with their builders closely to develop new product—that which their prospects want and Newland is paying for the architectural drawings. Eliminating builders that don’t buy into their program. Looking at amenities differently and re-engineering the sales and marketing process—no longer building welcome centers, but fully functional structures that are experiential, lifestyle based. Uses might be as a café where the coffee provider is a licensed sales agent. Might sell alcohol and food as well. Introduced electronic swipe cards so prospects can visit the models at their leisure.

Johnson Development Group—Doug Goff—major Texas developer-primarily Houston.

Developing Lake Arrowhead in Cherokee County outside of Atlanta—been there for a long time—lesson learned—“don’t fall in love with the land”. Johnson is being aggressive in acquiring new properties, even looking outside of Texas.

Take a look at Newland’s website and interesting to read about Oread Capital—mentioned quite a bit at this session. www.oreadcapital.com

 

 

 


ULI Capital Markets conference—Kiawah Island September 30th-October 1st, 2013

October 15, 2013

Michael Cohen-Property and Portfolio Research

Labor force in the south has consistently risen since 2010; housing recovery contributes to growth as does the demand for autos.

Growth is contingent upon the global economy—Housing, health care, manufacturing.  Consumption is the largest share of the US economy—grown from 57% in 1952 to 72% in 2012.

Exports as a % of GDP rose in the 2nd qtr of 2013.  Sunbelt will continue to have positive population growth—Charlotte has grown 3 times the national average in the last 10 years.

Education levels matter—Raleigh is in the top 5 cities in the US in terms of employees with advanced degrees.(RTP)

Median home prices are up 15% over the entire market—energy markets like Houston and Dallas have fared the best.

Tech metros like Austin, Houston, Dallas and Raleigh are doing well.

Healthcare employment has risen by 210% from ’82 to ’12-driven by demographics-aging adults.  Currently 50 million uninsured Americans, with ACA-22 million of those will be insured. Economic impact for the South will be positive.

Manufacturing sector has added 500,000 jobs but he expects that sector to be flat.  Energy—spike in oil and gas production.  Every recession in US has been preceded by an oil shock-(increase in price by 40%). A real concern is that Federal debt is 104% of GDP.  Long term structural issues are the entitlement programs.  Interest rate shock of 200 basis points could result in loss of 3 million jobs and 10% unemployment!!!!!!!

Residential panel consisting of Charles Teal, Diana Permar, Pulte rep, David Frame of Landeavor made the following points:

In the next 20 years, 43% of the US population growth will be concentrated in 10 strategic growth corridors—Charlotte is well positioned.

Charles—the markets they build in—Charlotte, Raleigh, Charleston are very competitive—he looks at submarkets and neighborhood by neighborhood.  Pent up demand has been met and the low levels of activity are behind us—the recovery has begun, but the ability of buyers to move up is strained due to interest rates moving up.  Locations are key.

David Frame—Landeavor is developing land with cash flow and equity, can’t develop lots fast enough in Charlotte or Raleigh.  Hard to know how much demand is out there since our business is driven by job growth.

Charles—local developers are out of business, large banks are starting to do some A&D financing.  Saussy Burbank is doing a fair amount of infill product, replacing the small custom builders who are mostly gone. Concerned about the void in the new lot development space with entitlement process taking 9-12 months and development time of 6-9 months.

Diana Permar—we have not seen the innovation you would expect coming out of this recession—reason is that capital is saying prove it works first before lending on it.  People have learned from this downturn—no short memories this time.  Buyers today ask a lot of questions, people will own houses longer—not churning-that cuts down on demand.  We better know what today’s buyers want in a house to be successful.  Boomers are back—want nice finishes, not necessarily high priced homes.

David—D.R. Horton is buying lots of land nationwide, land prices in Texas have doubled in the last year.  Thinks it will be 18-36 months before we see a supply-demand balance.

Pulte—find a partner you can trust—they definitely see a shift to smaller houses.

Charles—today’s buyer is constrained by lack of appreciation—might rent if don’t know how long his job will be for.  Shock to young buyers that rates have risen from 3.125 to 4.25%.

Generation Y-want to be owners—“practicality” is the buzzword here. They live with a high degree of uncertainty—want good school districts, yards and flexibility.  Opportunity for home design with multigenerational buyers and how families change over time.

David—Cost is a huge issue—materials and labor are up 25%–creep of cost is impactful in overall housing.  Charles—Dependable trades are a challenge as well.  Buyers are really focused on “A” locations and want value appreciation.

Opportunities in the residential housing market:

Diana-data mining, social media and understanding customers in real time.  Design-look at how customers want to live their lives today.  They want walkable communities, parks, trails, open spaces where they can walk and bike.  Technology must work too.

David-the boomers are back—if you have product available, they will buy.

Charles-mark your assets to market—you make $ when you buy the land.

2nd home market—Diana—the best places are selling well.  2nd/3rd tier will struggle longer.  Wealthy in this country are doing well.  Need more structures built in 2nd home communities—must be easy to get to for 2nd home buyers—people want available product—ready to move into.  No price increases yet—private equity is slowly coming back in this market.


ULI South Carolina–Reinvention, Reinvestment & Innovation

February 13, 2013

February 7-8, 2013

Leadership and Innovation panelists—Jim Chaffin, Jim Light, Peter Rummell, Ron Terwilliger.  Moderator-Diana Permar

Topic was Charles Fraser, Chairman of the Sea Pines Company

How you came to work for Sea Pines?

Light- arrived in 1968 at age 25, William Hilton Inn and Adventure Inn were the only hotels, about 1000 people living on HHI.  Goal was to develop 100 lots and 20 condos on average per year.  Charles was capital starved, bought land from a family for $1 down and a note.  Greenwood gave him $ for the 1st golf course in a swap for ocean front property.  Light followed Charles around and took notes—gave him a position of “authority”.  Light recruited Chaffin out of grad school.

Rummell was in his second year at Wharton; Terwilliger was at Harvard Business School and joined the company at the end of 1970.

Thoughts about Charles:

He was passionate about ULI—1971—leadership starts at the top,

He had a thirst for learning and intellectual curiosity—had to know what was going on. “Never invent when you can steal”-important to learn from others.  ULI ethic—share information openly and candidly.

Charles’ leadership style:

1-clarity of mission—wrote consumer protection guidelines early on and committed 25% of the land for open space.

2-guy who takes notes, controls the meetings—Light

3-tuned in to how hard his people worked—invited spouses to meetings and appreciation dinners.

4-he was a delegator—his young team had lots of responsibility.

Achieved $106 million in sales year ending 2-28-74.

Rummell—we tried to do too much, too fast. Charles was creative and an avid reader—introduced bike paths, rules on tree cutting, nature/open space.

Terwilliger—Charles was “Steve Jobs” like in that he conceived what consumers might want.  Took an idea and evolved it by talking to lots of people.  “Process is as important as creativity.” He took a good idea and stayed with it—was a good listener.

“Connectedness” is important to today’s consumer—family, health, making friends are what have importance, not sticks/bricks and amenities.

Terwilliger—must have long term view—sustainability—Daniel Island-no debt.

In resorts—gates are more for sense of security than elitism today. Gates are a negative today.  Golf is not front and center.

Rummell—isolation is a huge issue-doesn’t work socially, environmentally or in terms of infrastructure—becoming more a vertical world, access to services, etc. is important.  Theme will be Health—huge opportunity in 1st and 2nd home communities.  There is a mentality in place about the way you think about things as people get older—Wellness and Continuing Education.

Light—it is just fine to rent—may be out of necessity—but attitudinal as well.

Sea Pines experience/lesson:

Light—tenacity—concepts he believed in.

Terwilliger-business is cyclical-must organize to get through the downturn.

Chaffin-talked about Charles’ passion and joy, coupled with his persistence and courage.

Rummell-ideas can come from anywhere.


UNC Real Estate Conference – February 23, 2012 – Summary Notes

March 6, 2012

Nick Sargen—SVP, Ft. Washington Investment Advisors, Cincinnati, Ohio

2012 Outlook:  Overcoming Debt, Deadlock, and Financial Depression

  • There is a loss of policy making in the US and Europe
  • Nervousness-crisis had gone from smaller countries to larger ones—Greece to Ireland
  • Markets stabilized at the end of 2011, U.S. stock market was flat, emerging markets sold off—12 to 19%, there was a flight to quality—treasuries.
  • Investors were fearful of a double dip-2nd recession, but according to Nick—we couldn’t go much lower.
  • Why don’t people feel better about things?
  • Decline in unemployment is exaggerated, U.S. households are adjusting with debt, interest rates must be kept low, corporate profits are rebounding.

Europe—how bad? 5 point plan:

  • Take Greece off the map, recapitalize the banks, reliquify the banking system, create a firewall so people don’t worry about Portugal and Italy, and move toward fiscal integration.
  • European Central Bank is expanding its Balance Sheet.  Europe’s problems are not solved—have some breathing room.
  • China is pulling off a soft landing—bubble in housing market maybe.
  • Fed policy objectives-maintain inflation expectations while lowering real yields.  U.S. is improving marginally—2 to 3% 
  • Stay Nimble, Be Humble—2012 will be a Mixed Bag……

Peter Muoio, Ph.D., Maximus Advisors

Key Dynamics for the Economy

  • When people are uncertain about the future, they wait and do nothing.
  • Uncertainty is the enemy of growth.
  • Consumer spending gyrating as consumers respond to economic winds, retailers appear to be thinking about expansion again.
  • Home price declines-industry continues to languish.
  • Stock market sell-off hurt household wealth, again.
  • Savings rate has dropped significantly in recent months.
  • People are also taking on new debt.
  • Business sector is holding up so far—investment spending is increasing.
  • Export growth has been a key ingredient of recovery, Global growth is slowing.
  • Government shifting to exerting a drag on the economy—state and local employment is down.
  • World of known unknowns and unknown unknowns—we have a lot of known unknowns that could once again break up the party.
  • Having robust apartment and hotel recoveries
  • Apartment absorption is strong—rents up 4.7% since trough
  • Household formations are picking up again—1.1 to 1.2 million is standard—400k or less for the 2 yr. recession.
  • Expect strong rent gains ahead.  Office jobs have been recovering, supply-demand in balance, office rents edging up. 
  • Retail-grabbing higher share of sales and changing retail formats
  • Spending on housing related goods are still soft.
  • Hospitality-demand increasing on all fronts-supply slowing, occupancies are healthier.
  • Hotel revenue is tracking with ebb and flow of GDP.
  • Foreign visitors to U.S.—very strong.

Mark Vitner, Senior Economist, Wells Fargo

  • Word to describe the economy—SURREAL
  • Lots of vulnerability out there
  • Europe, oil and gas prices—not sure economy can handle $4.50/gal for gas,
  • Politics is a sleeper-
  • Thinks we will see Moody’s and S&P downgrade credit this year.
  • Deleveraging—we are more vulnerable, but resilient.
  • People are not paying off debt, large growth in student loans.
  • More people realize they will not have same incomes or create wealth they used to believe they would have.
  • Banking system is stronger—competitiveness is a strong suit of our country.
  • Office employment is not as strong as the numbers suggest.  This is temporary staffing employment.  Thinks GDP growth is understated.
  • From history—recoveries from financial crises tend to be slow and protracted.
  • 2022-back to our normal—doesn’t mean we aren’t going to grow, but-lots of shadow inventory.
  • Housing-thinks starts have bottomed and will increase
  • Moderately thru 2012 returning to a normal level by 2015.
  • Single family starts—forecasted to rise 7% per Wells Fargo.
  • N.C. labor market is still severely impaired. 
  • Thinks the glass is half full, but it is a shot glass……

Notes from ULI’s 2011 Fall Meeting in LA

November 1, 2011

 What’s Next for Real Estate?  Presented by ULI Senior Fellows:

 Tom Murphy—where jobs might be in the future.

  • Employment change 1990-2010, Boston lost 120,000 manufacturing jobs—55%
  • Realized gains in professional and business services, healthcare and education
  • Average space per US employee—from 1985 to 2011 dropped 150 square feet per person
  • Expected to drop another 150sf by 2020.  People are plugging in their computers in designated work spaces and working together.
  • Educated work force is important going forward—gives you a competitive advantage-D.C. leads, San Fran, San Jose, Raleigh.
  • Research $ a region attracts is critical, availability of capital—2/3 of venture capital goes to Silicon Valley, Boston and New York area.
  • Necessary ingredients—low crime, leadership, infrastructure investment—how you move people around.

John McIllwain

  • We are 4 yrs. into the housing recession nationally, home prices are down this yr. and he thinks they will continue that trend next year.
  • Home prices are down 30% from 2006.
  • Forming 400k households/yr—New home sales of 300k or less
  • Homeownership rate typically 65% and falling—we will see more renters in the future
  • Since 2004—US has 4.3 million more renters,  11 million homeowners are under water—equates to 57% homeownership rate.  There are far more renters living in the suburbs.
  • Gen. Y—16 to 33 yr. olds—pent up demand of 4-6 million households waiting to be formed.  They are poorer than any generation since the ‘30’s.
  • Highly mobile, well educated, very urban—most want to be a homeowner eventually.  They are in debt—projection is they will buy in their mid to late 30’s.
  • Seniors (65-75) there will be 14.5 million more by 2020, they are living longer, most are active and healthy, family is important and they are deferring retirement—they are urban, diverse, and open to change.  Question is do they have enough money to live for the rest of their lives? They say they will age in place—can they continue to pay for housing?
  • Financing—nothing certain here—90% of all housing is financed by the Fed.  Expect no changes until 2013 at the earliest.

Ed McMahon—sustainability

  • Energy and green building—retrofitting of existing buildings—where will our energy come from? Global energy consumption will double by 2050. $8/gal gas in 2020.
  • Revitilization and redesign of suburbs—conversion of dead or dying strip commercial centers in suburbs into urban, walkable places.—Opportunities with greyfield sites—tear up parking lots and rebuild paradise.
  • One less car for greater homebuying power allows people to live closer in.
  • Leveraging green—Millennium Park in Chicago.
  • Water is more precious than oil—San Antonio has instituted innovative water conservation techniques.

Steve Blank—Investment

  • Volatility and uncertainty will be on the rise—4 paradigm shifts
  • Securitization-more jv’s, partnerships, reits’
  • Globalization-public and private debt and equity will evolve, Volker rule will be implemented.
  • Consolidation-size becomes prized.
  • Technology-Myths/legends exposed—AIG was rated AAA.

  

Respondents to the book—What’s Next For Real Estate?

 Rosemary Feenan—Jones Lang LaSalle

  • Ebb and flow of cities—which will do well, city to city commerce
  • Attitudes to risk are changing
  • Transparencies are more important
  • Stress on water-natural resources
  • Competitiveness with cities—gen x and y, which cities do you want on your resumes?
  • Riots in London—concern for real estate and unemployment.

Thomas Tooney—UDR- apartment reit –owns 60,000 apts.

  • How does current environment change my business model—how do I make money in the future?
  • 80% of US GDP is an urban platform
  • 6 million more renters by 2015.
  • Cities resources are strained. If a weak city, maybe can’t service us.
  • Jobs/education attract capital
  • Energy-water-living with less.
  • Gen Y phones are on all the time—need bandwidth—criteria for apt. dwellers
  • Seniors are larger part of the work force—how to create a market niche? Suburbs are not dead—immigration-positive trend-how does your product fit for them?

Thought Leaders—Brooke Warrick-President of American Lives, and Peter Yesawich-Chairman of Y Partnership.

It’s about lifestyle, not real estate.  It’s about family, not goals.

Thomas Friedman-something’s happening here—value shifts are taking place.

Technology is changing the way we work.

Internal focus used to be making money, now more family oriented.

6 Trends

  • Voluntarily Simplicity—they can live a simple life, family and relationships are more important.
  • Cutting back-doing so in favor of family-home becomes more important—2nd home even more important now.
  • Book—Encore—people our age want to create something new, search for fulfillment and meaning,  not cutting out, but cutting back.
  • New resourcefulness—way $ is managed in households, practical vacations.  This is not a fad.

 In 2008 US had 10 million millionaires, lost 3 million in 18 months. There is a pervasive degradation of trust in government and most institutions—causing us to turn more inward, more cocooning.

  • Health and wellness—well established trend—not a fad. Biking and walking trails within communities is the connective tissue.  Happy places in the world are characterized by 6 hours of socialization/day.
  • Brooke lives in Carmel—observes strollers and older people walking daily.  Health thru nature-can do art on these trails, promontory points, waterfalls, gazebos, sanctuary places.
  • People our age have intellectual curiosity—dimension of wellness as it relates to lifestyle—programming-software is intriguing to people—art classes, cooking—want to learn more.
  • People are looking at fulfillment thru giving—not necessarily making money.  Sun City lifestyle is not what is happening—there is an opportunity here to service the boomers.
  • Canyon Ranch—guests talked about the spiritual journey they got—not the great massage or spa.  Miraval-talked about mindfulness and intentionality.  Women are taking the lead.  Neuro channel physical activities.
  • Buyers of 2nd homes used to take a vacation, fell in love with the experience and bought the property.  Now they are looking for a more practical investment, prices they pay are lower—takes them to shared ownership—not whole ownership.
  • Need to create a multi generational experience.
  • Sustainability—do it—all other industries are creating consumer monsters—Wal Mart is doing it.  Look at as a system issue—local people, local food, local resources.  Organizations should have a meaning and a mission, not just transactions.  Need to communicate that mission.

Book-Differentiation

Work life—habits changed about 1996

  • Average work week is 48 hrs.  We are consumed by work
  • People are not willing to leave their work life behind.  Work life is transforming us.  Vacations are getting shorter—weekends are most popular.

 Personalization—one size no longer fits all

The way people use it is important to figure out—resort developers need to figure this out—how do I want to spend my time, family.  Technology piece fits in there.  Worked with Texas homebuilder—had a showroom—people had choices to make—easier for consumer to choose from 6 vs. 24.  Amazon.com—bought this book, might like this book.

Multigenerational—those that took a vacation—1 out of 4 is a grandparent—1 out of 3 of those took vacation with grandchildren.  Hallmark sold 84,000 cards last year where people turned 100 yrs. old.

The “Girlfriend experience” 4 girls reconnect each yr at Canyon Ranch—transformational experience—75% of spa business is women.

Authenticity is in demand—fundamental in all the experiences we have.

Marti Barletta—founder of Trend Sight Group and author of Marketing to Women–helping companies get smart about women.  Prime Time Women—50’s and 60’s.

Hotels tell us that women comprise 50% of the business travelers and 76% of meeting planners.  Lifestyle-real estate—women are the primary decision makers.

Five stages for couples in the buying process:

  1. Decision to buy—woman is the budget manager-pays bills in 83% of households.
  2. Research the short list—she must be aware—she does the research thru referrals, pr and adv., target tightly on top prospects—magazines, direct mail and email. Looks at your website and dvd’s.
  3. Visit/sales consultation—man and wife go and “assess the fit”. He assesses the property, she assesses the home-livability, functionality, flexibility. Most Realtors say He can say no, but only She can Yes.  Salesperson’s ability to connect with her often makes a difference—Listening-details make the difference—Aligning communication with her priorities, creating rapport, trust and confidence.
  4. Purchase negotiations/contract—lots of questions and what ifs.  She will often defer to him.  This is where husband steps forward and she steps back.
  5. Referrals-word of mouth is huge—“surprise and delight”—ex. of receiving bouquet of red roses from PeaPod—online grocery delivery service—told everyone about it.
  •  Industry issue is “Why Buy Now”?—Women’s values and priorities are family, friends, girlfriends and grandkids.
  • Our focus should be on Prime Time Women—prime marketing target in the prime of their lives—not retired, exec. VP’s, work outside the home—very large growth expected.
  • Looking for a hotel in mid town Manhattan under $500/night—location and price are important—she will shop around, looks at more options than men.  Deciding factor was Westin—“heavenly bed”.
  • When you meet expectations of women, you exceed expectations of men.  To Women, people are the most important and interesting element of any situation.  Ads with women on the golf course are attention grabbers.
  • Women want the same things as men, and then some…..

Effective Sales and Marketing in the New Economy-

  • Prospective buyers must experience it-must visit the property.
  • Sales associates need to be coached and retrained.
  • Website needs to be compatible with IPAD and IPHONE
  • Need programs where people can stay on the property-have special events and get your prospects to attend.
  • Need to understand your prospects, their likes (hiking, birthdays) and communicate with them.  Know your audience, be able to tell the story.  Buyers want validation, they will bring their wife, their friends and their children.
  • In the Boca market—built some models and prospects bought model and interior furnishings as well.  They also saw benefit in reaching out to top brokers in major markets.

Toll Brothers Golf—David Richey—Why is Toll Brothers Buying Golf Courses/Clubs without real estate?

  • Wants their clubs to match the image of the homebuilding company—Toll’s brand as a luxury homebuilder.
  • Clubs are in trouble today and need creative solutions.
  • Opportunity to purchase at an attractive price.
  • Using homebuilding company’s resources for existing membership and management talent.
  • Have available capital and corporate resources.
  • Restructuring/New Memberships:
  • Expects more non equity will prevail at a lower price
  • Will be non refundable
  • Fees will come down
  • Working on removing the objections to joining and removing the obstacles to resigning.

Boomer Values Realignment Study


Capital Connections — ULI South Carolina Capital Markets Conference 9/19-20/11

September 28, 2011

Tim Quinlan—Economist—Wells Fargo

  • He forecasted stagnation in economic growth—income continues to grow and sustains consumer spending growth—however slight.
  • Rates will move sideways to slightly up.
  • Housing starts have bottomed-will increase modestly thru 2012 and “normal “ levels in 2015—1.3 million starts
  • Gap between existing and new home sales is widening.  Enormous supply of vacant homes for rent and for sale—2006 level.  Stimulus programs and foreclosure moratoriums are going away.
  • Commercial real estate prices remain weak
  • Apartment market growth has started to slow.
  • Office fundamentals are improving.
  • Industrials improving slowly.
  • Retail hit the wall in first half of 2011—higher food and energy prices.
  • Job growth in S.C. concentrated in professional and business services, education and healthcare.
  • S.C. housing market continues to struggle—building activity is flat.
  • N.C. job growth is dipping—new housing construction is constrained by high levels of inventory.
  • Overall inflation is trending up—economy is not expanding.

Opening session—Dean Adler, CEO & Founder of Lubert-Adler and Bob Faith, Founder of Greystar

Moderated by Steve Navarro of the Furman Co.—positioning your companies over turbulent times.

  • Bob-knew downturn would eventually come-need to plan and position for it, Greystar manages 185,000 multi family units—focus entirely on that business.  “Never bet the ranch”.
  • Dean-in the fall of 2007 they were not prepared for the Depression—enormous uncertainty-not sure banks would survive-everyone wanted to get liquid.  His firm communicated with lenders, partners and investors consistently.  Had too much equity in some of their developments-couldn’t get liquid.
  • 2009-10—focus on rental assets-had an appetite for yield-needed whatever generated yield-weren’t many assets for sale so they went to the debt markets to get control of those assets.
  • Bob-know who your partners and lenders are—that is critical, Greystar gave 2 properties back—AIG—had no clue!
  • Dean-know who you are dealing with going forward, their goal is to acquire assets where they have a competitive edge.  Auctions are creating very high prices—they use the “borrowers approach—trying to recap the loan with the borrower so they get the right information.

Regarding capital sources

  • Dean suggested using existing investors—matching assets they have not been able to sell—feels responsible to get best price for his investors when they sell.  Rebalance your portfolio and learn from the best.

Strategic Planning—most important for new investors

  • Dean-focus on mid market ($10-30 mil) with local partners—local businesses.  Big pools are selling at a premium-not at a discount, rates of return are 12% on leveraged basis for non performing loans.
  • Backing partners where they can find opportunities-local executors—Multi family and retail space.
  • Bob—started Greystar in 1993-focus on MF-largest in the US.
  • Dean-huge changes in retail-been dominated by large guys—Wal Mart, Best Buy.
  • Huge risks for shopping centers that are not in top tiers, must have retailers in advance, retail is a game of winners and losers, need to be the premier center or don’t be in the game.
  • Hotels-urban, in major markets are ok-real problem is pricing—can’t get 10x NOI.  Volatility has not been priced in.
  • Steve- geographic markets—where will you invest?
  • Bob—Dallas, Atlanta, L.A., D.C., Boston
  • Dean-want informational or operational competitive edge-where partner in the transaction has been operating the asset.
  • His exit strategy has changed dramatically over last 120 days, never been a better time to sell, no yield in the world today—5 cap doesn’t mean anything—he has been a net seller where there is no significant growth.

Leadership:

  • Bob—Trammel Crow told him to get 3 bids on a deal and them add them together! (for most realistic pricing)
  • Doing things the right way gives you competitive advantage, treat people with respect, honesty, acting with humility—this is a relationship business. We are in a cyclical business so plan accordingly, and do not ignore the data plus trust your gut when it comes to people decisions.
  • Dean—real estate is a local game—local guy has the pulse of the market.
  • Insider has a lot of on the ground experience.
  • It is about execution-not just acquisition
  • Real estate is all about leasing to Real Demand—they got in the resort business—his advice was when the investor is the buyer or user—RUN!

John Bucksbaum—Former Chairman and CEO-General Growth Properties

  • His father and uncle built their first shopping center in Cedar Rapids, Iowa in 1954
  • In 1970 GGP became a publicly traded REIT.
  • 1985-took it private–$800 million value—largest real estate transaction ever in this country—they were a ground up developer. ( IBM pension fund)
  • 1993 went public cause they saw the business changing, expected large acquisition opportunities–$1.2 billion company with 22 malls.
  • 1994 acquired Centermark Co—shopping center arm of May Co.’s that owned 20 properties-$1 billion value—brought in Westfield and Goldman Sachs to help.
  • 1999 John became CEO
  • 2004-bought Rouse portfolio $13 billion that included Columbia, Maryland, Woodlands in Houston and Summerlin in Vegas.
  • August of 2007—GGP had market cap of $45 billion with 200 malls, 200 million sf of space and over 24,000 tenants.
  • They had paid over $4 billion in dividends, never defaulted on debt—paid off over $32 billion in loans.
  • Problem: financial market driven issue—they financed each property individually –60 to 70% loan to value.
  • CMBS market shut down in 2008—was $32 billion market in ’07, $16 billion in ’08, 0 in ’09.  Had large near term debt maturities—average time to maturity was 2.82 yrs (compression of maturities hurt).  Cash flow of $2.5 billion/yr.  Stock price at peak was $67.50
  • Lesson: while you cannot imagine what a doomsday scenario can bring—think about the worst case possible
  • 11-08—stock price was $.32/share with $100 million mkt. cap
  • 4-09 filed for bankruptcy
  • Return of GGP in 2010—new entity is Howard Hughes Co with stock priced around $18/share.
  • Lessons learned from bankruptcy:
    • Trust your instincts
    • Must be your own advocate
    • Don’t trust anyone!
    • Everyone gets rich but you–$250 million paid in professional fees.
    • What do you really think of equity?
    • Who is serving whom?
  • How important is the judge?—In his case, critical in that he told the creditors they were not going to destroy this company.  John worked with the equity committee and helped them understand the value of the company.