Where in the World Are the Real Estate Opportunities?

Global Economic Outlook and Investment Geography

• Sam Zell identifies Colombia as the number one emerging market investment due to the US free trade agreement and capitalization opportunities.
• Zell notes the proposed merger of Chile, Peru, and Colombia stock markets, creating the second-largest bourse in Latin America to funnel capital into those regions.
• Brazil's GDP growth has contracted from 8-9% to approximately 1.5%, but the significant reduction in available capital has reduced competition, making it more attractive for investors.
• Zell advises against investing in China for non-strategic real estate due to an oversupply of capital and lack of specialized product differentiation.
• Zell and the panel reject European investments for the time being, citing a lack of underlying demand despite low interest rates.
• Bill McMorrow states that 80% of Kennedy Wilson's capital deployment this year will be in Europe, specifically the UK and Spain.
• Jonathan Pollock (Deutsche Bank) attributes Europe's recovery to the rapid re-emergence of US financial institutions actively lending, with spreads decreasing and capital availability increasing.
• Bill McMorrow highlights Spain's forced liquidation of legacy banking assets and government reforms as key catalysts for investment opportunities.

Geopolitical Risks and Macroeconomic Uncertainty

• Zell expresses strong concern regarding the Ukraine crisis, arguing it is a major global danger rather than a minor regional issue.
• Zell asserts that the assumption of Vladimir Putin's rationality is flawed and that Western sanctions will disproportionately impact Europe compared to the US.
• Bill Kahana and Jonathan Pollock minimize the immediate impact of the Ukraine crisis on their specific portfolios, focusing instead on broader debt market recoveries and capital availability.
• The panel acknowledges that the US real estate market is currently "ahead of progress" due to a massive bout of political and economic uncertainty.
• Sam Zell argues that the lack of new construction over the last eight years has created a supply shortage, forcing investors to focus on specific transactions rather than general market conditions.

Capital Markets, Debt, and Leverage Trends

• Deutsche Bank reported being the most active book runner for CMBS transactions in 2013, signaling a strong return of the debt market.
• Jonathan Pollock notes that capital availability in real estate has increased dramatically, with debt ranging from 10-year fixed rates at 4% to transitional property financing.
• Pollock warns against the excessive leverage seen in 2007, predicting a trend of moderate leverage driven by low interest rates rather than aggressive credit expansion.
• Bill Kahana (RCS Capital) manages $40 billion in assets through 13 programs, emphasizing the necessity of public market access for capital deployment and harvesting.
• Kahana notes that RCS Capital's average borrowing costs are around 4%, significantly lower than the 6.5% 50-year historical average, allowing for strong returns in net lease strategies.
• Henry Silverman (Guggenheim) outlines a strategy to avoid the "middle" of the risk spectrum, focusing instead on senior secured debt or ground-up development to mitigate cap rate risks when interest rates rise.
• Guggenheim is utilizing floating-rate senior debt, often requiring borrowers to swap to fixed rates, to protect against rapid interest rate increases predicted by CIO Scott Minard.

Demographic Shifts and the Multifamily Sector

• Sam Zell predicts a decline in US homeownership from a 62% historical floor to potentially 55%, driven by a cultural shift toward renting.
• Zell cites deferral of marriage and the inability of younger generations (Gen X, Y) to make long-term commitments as primary drivers for the multifamily boom.
• Bill McMorrow observes that 45% of one-person apartments in their NYC portfolio are occupied by single individuals, reflecting the "rental commitment" trend.
• Demographic shifts are forcing a pivot from suburban single-family housing to high-density, urban-oriented multifamily developments in major centers like Seattle, Los Angeles, and San Francisco.
• Bill Kahana identifies hospitality, specifically select-service and limited full-service properties, as a key strategy leveraging low effective expenses and room rate growth.

Alternative Capital Sources and Technology

• Crowdfunding is viewed as a complement to traditional capital raising rather than a threat, with $6 billion raised in the last 12 months.
• Crowdfunding reduces equity raising costs from approximately 10% (broker-dealer channel) to 5%.
• Sam Zell notes that 80% of Guggenheim's equity is sold via traditional channels, but acknowledges a potential shift in the market toward buying assets directly.
• Bill Kahana anticipates raising approximately $1 billion in international corporate and sovereign capital seeking dollar-denominated yields on strong assets.
• Henry Silverman sees crowdfunding as a mechanism for sponsors to access retail capital at lower cap rates, potentially boosting overall returns.

Healthcare Real Estate and Regulatory Impact

• Healthcare real estate is identified as a high-priority sector due to the emotional connection investors (55+) have with senior housing and skilled nursing facilities.
• Bill Kahana reports that the fundraising timeline for their healthcare REIT decreased from nearly 30 months for the first raise to under 12 months for the second due to improved market sentiment.
• The panel views the transition to ambulatory care facilities and the substitution of medical offices for empty retail spaces as a significant growth opportunity.
• Zell dismisses the "green" universal healthcare map as a variable, noting the disparity between nations like Russia and the US suggests it has little impact on capital allocation decisions.

Forward-Looking "One Pick" Recommendations

• Bill Kahana: Select-service and limited full-service hospitality properties with high revenue potential from room components.
• Bill McMorrow: Multifamily assets in the western US, followed by street-level retail and housing in major UK and Irish urban centers.
• Jonathan Pollock: Urban-centric real estate in major US and European markets, specifically targeting areas undergoing demographic and economic remodeling.
• Sam Zell: Mexico, driven by supply chain shifts following the Fukushima nuclear disaster (benefiting manufacturing) and anticipated reforms to the state-owned oil company, Pemex.
• Henry Silverman: Markets benefiting from flight capital and urbanization, specifically Miami (Latin American capital), London, New York, and Beverly Hills.

Specific Market Anomalies and Observations

• Miami development is described as "de-risked," with developers often collecting 60% of construction costs in deposits before breaking ground.
• Zell highlights "zombie neighborhoods" in Miami where empty apartments contrast with high-end developments, raising questions about community sustainability.
• Irvine, California, sees 80% of home purchases in new neighborhoods from Asian buyers, with 50% paid in cash.
• Sam Zell notes that 80% of Guggenheim's equity sales occur through broker-dealers, though a small but growing portion comes from the RIA channel.