Panel, Conference Presentation
Where in the World Are the Real Estate Opportunities?
- Global economic growth is projected across Australia, the Eurozone (recovering from a recession), Japan, the UK, the US, and emerging markets, with Colombia expected to lead emerging market investments due to US free trade benefits and US market access.
- A merger of the Chile, Peru, and Colombian stock markets is forecast for completion by year-end, creating the second-largest Latin American bourse to funnel capital.
- Brazil's GDP growth is expected to shrink from 8-9% to 1.5% or less, while China is anticipated to maintain capital availability despite headlines, though foreign investment there is deemed unviable without strategic specialization.
- European markets are viewed as unattractive due to a lack of visible demand, though capital availability is increasing via US financial lending, with Spain expected to outperform the Euro region through reforms and forced banking asset liquidation.
- The US market is predicted to be significantly ahead of actual economic progress, driven by uncertainty and a massive gap between selling and buying decisions, while Europe faces the brunt of sanctions compared to the US.
- A sustained dearth of new housing supply in the US is expected due to a lack of construction over the last eight years, potentially driving the US homeownership rate down from 64% to 55% while favoring multifamily and urban-oriented housing over single-family detached homes.
- Mexico is identified as the most attractive global investment, expected to benefit heavily from Fukushima-related supply chain shifts and growth in central manufacturing sectors for cars and airplanes.
- Real estate capital availability is trending upward, with priced debt plentiful for 10-year fixed-rate loans at 4% and for transitional properties, while leverage is not expected to return to 2007 levels.
- If interest rates rise quickly, cap rates are predicted to increase correspondingly, potentially lowering real estate values despite current low rates driving returns and asset prices.
- Investment strategies are shifting toward the extremes of the risk spectrum (senior secured debt and ground-up development), avoiding the middle, with Guggenheim focusing on markets receiving flight capital such as New York, London, Miami, and Beverly Hills.
- Crowdfunding is expected to provide retail capital at lower cap rates, though a single bad deal could negatively impact the model, with 80% of equity sales continuing versus 20% via the RIA channel.
- Bill Kahana's firm plans to deploy approximately $1 billion in equity in the European Union over the next 12 months, while targeting a total raise of $14 billion this year, including $1 billion in international sovereign and corporate money.
- Financial projections include a hospitality yield of 7% coverage with tax deferral and protection, and the expectation that 13% of a million investors hold US passports, potentially utilizing them for travel to Mexico or Canada.
- Demographic trends such as urbanization and deferred marriage are expected to drive the US rental market, with 45% of the 18,000 NYC apartments currently occupied by single residents.
- Specific regional insights note that 80% of housing purchases in Irvine's Great Park neighborhoods are made by Asian buyers, 50% of which are cash, and approximately 60% of Miami development costs are collected in deposits before construction.
- Risks include the danger of the current crisis driven by unpredictable actions from Vladimir Putin, the potential negative impact of "zombie neighborhoods" in Miami regarding apartment-to-resident disparities, and the slow recovery of European debt markets compared to the US.