Jul 6, 2018, 6:15 PM ETPanel

Real Estate Outlook: A More Attractive Asset?

Panelists broadly agree the real estate cycle is in its "11th inning" (late stage), characterized by unprecedented capital inflows and compressed yields.
Sam Zell attributes the late cycle to a post-2009 construction vacuum, with a resurgence of new supply expected over the next 24 months leading to oversupply.
David Simon describes a disconnect between buyers expecting price declines and sellers anchored in rear-view mirror pricing due to low historical interest rates.
Neil Bloom notes that cap rates have risen approximately 50 basis points, though prime asset values remain resilient.
Al Ofer warns that high asset values are unsustainable if interest rates or inflation rise further.
Bob Morris highlights a bifurcation where public REITs trade at significant discounts (25–30% below private values) while private bidding remains aggressive for select assets.
Neil Bloom observes a dramatic reduction in transaction volume, citing a drop from 30 serious buyers four years ago to "hoping somebody shows up" today.
Sam Zell predicts a market correction but dismisses the likelihood of a "carnage" event comparable to the 1989–1993 bust, citing stricter underwriting and disciplined public companies.

Bob Morris argues that private markets avoid price discovery, whereas public markets (REITs) are accurately pricing in late-cycle risks.
David Simon estimates high-street retail rents in New York City may need to decline by 50% to correct artificial valuations driven by unattainable rents of $2,500 per square foot.
Al Ofer identifies high-end office and residential real estate in coastal US markets and Hong Kong as the most overpriced asset classes globally.
Neil Bloom attributes the valuation disconnect in New York to an "FAR ratio" (Floor Area Ratio) surge from $50 in 2000 to $1,500 in 2007.
Bob Morris notes that while high-street retail in Paris held up, London is "on the verge of cracking," and New York has already "cracked."
Sam Zell and David Simon agree that while some assets are expensive, real estate currently offers better relative value compared to equity markets and the S&P 500.

Multifamily: Sam Zell sees strong fundamentals with limited new Class B supply, though Neil Bloom notes a minor dip in downtown apartment occupancy (98% to 97%) and rent growth (4% to 2%).
Office: Al Ofer points to a "tsunami" of new supply, specifically 14 million sq ft at Hudson Yards, 5 million at Brookfield, and 7 million FAR unbuilt by Vornado in NYC.
Industrial: Neil Bloom questions the sustainability of current commitments, noting every developer assumes all new space will be leased to Amazon.
Retail:
- David Simon states e-commerce has had "no impact" on overall retail demand, though it accelerates the obsolescence of "bad malls."
- Bob Morris confirms that e-commerce impact is already visible in high-street retail pricing corrections.
- Simon Property Group is actively redeveloping obsolete retail anchors (e.g., converting Belk in Buckhead, Atlanta into mixed-use office/hospitality).
Construction: Neil Bloom predicts a slowdown in construction three to four years out due to rising inflation and steel costs making new development unprofitable.
Seniors Housing: The panel identifies this niche, along with "live-work-play" mixed-use developments, as areas with strong fundamental tailwinds.

Self-Driving Cars:
- David Simon and Neil Bloom predict reduced demand for parking, allowing developers to convert parking structures into office or residential space.
- Bob Morris counters that self-driving trucks are more economically viable and imminent than self-driving passenger cars due to driver shortages.
- Al Ofer argues self-driving cars could strengthen downtown areas by making commute easier, shifting demand toward walkable urban centers.
Subway Usage: Neil Bloom reports a 5–8% decline in public transit usage (NYC, Chicago, SF) since the rise of Uber/Lyft, raising questions about future subway infrastructure investment.
Workplace Efficiency: Technological advancements have reduced office space per employee from 200 sq ft to 100 sq ft, increasing the efficiency of existing stock.

Sam Zell predicts a "tsunami of supply" will eventually force a reckoning where demand cannot meet the volume of new construction.
Al Ofer suggests that while public REITs are down, private capital remains eager to acquire distressed assets at a discount once a downturn occurs.
Bob Morris forecasts a continued trend of privatization, citing transactions like Brookfield buying General Growth and Unibuy acquiring Westfield.
Al Ofer highlights "manufactured housing" and modular technologies as potential cost-reducing opportunities.
Neil Bloom projects that if the Fed tapers liquidity, lending spreads will widen, negatively impacting asset prices.
Bob Morris notes that 42% of the US workforce will be freelance or independently employed within the next five to ten years, driving demand for collaborative living/working spaces.
Al Ofer suggests that while the "bust" may not look like 1990, a cycle correction is inevitable due to the availability of capital and the "supply" mechanism.
The panel concludes that the next major disruption will likely stem from the intersection of autonomous vehicles and public transportation infrastructure planning.