by Rebecca Bendetson ’21 and Mark Gately ’21 

With a global pandemic surging and COVID-19 cases rapidly rising in the US, Onay Payne (Managing Director, Clarion Partners), Coburn (Cobie) Packard (Partner, Co-Head of Real Estate, MSD Partners) and Miriam Wheeler (Partner, Co-Head Real Estate Finance Group, Goldman Sachs) joined the Real Estate Symposium to discuss the current state of real estate markets and where they see investment opportunities in 2021. The panel was moderated by Adam Gallistel ’04, Regional Head of Americas and Chairman of the Latin American Business Group of GIC Real Estate. After a brief introduction from each of the panelists, Adam started by asking Miriam for a quick overview of what’s going on in the real estate debt capital markets and how a growing balance sheet from deposits has impacted Goldman Sachs’s approach to lending.

Miriam Wheeler said that it has been an interesting year in the CMBS market. CMBS supply is down 40% year to date with issuance of $50B as compared to $90B at this time last year. One of the most interesting trends that Miriam has observed is the price distinction among asset classes. Two years ago, the CMBS market priced AAA rated credit roughly the same across all asset classes. In today’s market asset classes that investors like, such as industrial, are able to obtain financing with record low coupons while financing for asset classes that investors don’t like, such as retail, has been largely shut down. Looking forward to 2021 Miriam is hopeful of more M&A activity, which will lead to more volume in the CMBS market. She also thinks that the market is getting more comfortable with hotel loans, given the right structure, the right transaction, and with an interest reserve.

Growing the balance sheet from deposits has created opportunities for Goldman during the pandemic. Miriam stated that Goldman has put out over $5 billion of capital from March 31st through the end of the third quarter. Goldman took the opportunity to make loans that they would have been priced out of 6 months ago.

Adam transitioned the conversation to Onay of Clarion Partners, asking her what sectors she is looking at in 2021. Adding to Miriam’s information on debt, Onay pointed out that Clarion is a relatively conservative investment manager, typically utilizing moderate leverage and averaging 50%-60% LTV on their investments when leverage is employed. Turning towards her outlook for 2021, Onay stated that Clarion’s investments are based on their investment themes. In addition to industrial assets, Clarion is looking at multifamily and alternative assets, such as life sciences. She also sees opportunity in the housing sector, focusing on relative affordability.

In contrast to Onay’s portfolio, Cobie of MSD Partners discussed his approach to the coming year given that his portfolio has traditionally played in hotel and experiential retail. The hotel and retail assets within the portfolio have made it a tough and challenging year, but Cobie’s investment horizon is long term and focused on relative value. They are not in a rush to deploy capital and can be very patient in what they do, which allows them to focus on the long-term trends. Looking to 2021, his firm is very intrigued with lodging and believes there will be some opportunities there.

The panel discussion transitioned to one of the biggest topics during the pandemic—work from home—and its future impact on various asset classes. Cobie offered his thoughts first, saying that he believes the bigger shift is not urban to suburban but legacy gateway cities to cities in the south (Dallas, Austin, Nashville, Phoenix, etc.). Across the US the geographic shift is more interesting than the urban to suburban shift with the big tech companies potentially having a major impact on how these cities evolve. Onay then offered her thoughts, mentioning that Clarion has been conservative on office for a while now. She agreed with Cobie’s view, saying that she believes that millennials will be looking for a better quality of life and lower cost of living, driving the geographic shift to Southern and Midwestern cities. In conjunction with the flexibility of working from home the office environment will continue to be important to companies, saying that companies need their offices to train their people and build the company culture.

Expanding on the geographic shift discussion, Adam asked Miriam how the dichotomy between the traditional legacy gateway cities and southern and midwestern cities was flowing into the debt proceeds to borrowers. Miriam explained that this dichotomy is having an effect on how the market is underwriting financing for commercial office. In the legacy gateway cities like New York and San Francisco it depends on the building’s quality and rent roll. A borrower for a Class A office building with 10-year leases and strong tenants are able to obtain financing at attractive rates. However, the market is really struggling with Class B products and if you add to that a building with a lot of tenant roll in the next couple of years it almost becomes unfinanceable. While at the same time, within the new markets like Austin and Nashville, the market is seeing an incredible amount of demand resulting in assets that they can underwrite very efficiently.

Adam later followed up on Miriam’s earlier introduction to discuss loan on loan financing. In late March and early April when the margin calls came, loan on loan financing came to the forefront. Adam asked her how, as a result of this, business has changed for Goldman and its borrowers. 

Miriam responded by sharing that the stress started on the securities repo side. Investors bought what they thought were safe securities using borrowed repo against them with mark to market type of features. However, incredible distress came overnight, and it was highly visible to the market. This resulted in lowered securities repo prices and, in turn, liquidity issues for many counterparties. She transitioned to speak about the loan warehouse side. While it experienced a little bit of lowered pricing, it was far less than what was happening in the securities space. Yet, as a result of all of these challenges, borrowers repositioned to look for term financing, as opposed to warehouse financing. 

That brought Miriam to today’s challenges. As an alternative to MTM financing, some Borrowers are choosing to negotiate individual A  notes for every loan made, which is incredibly time intensive. She said someone once told her by doing this, “you may sleep well at night, but you may never sleep...” She closed by sharing how investors need to find balance. This is by not having too much mark to market financing but having a capital structure and ease of doing business that fits with business plans. She is seeing borrowers continue to diversify funding sources and sees this as an evolving process.

After a vibrant discussion with the panelists on current trends in the real estate markets and their investment strategies for 2021, Adam pivoted to the topic of Diversity and Inclusion, asking each of the panelists to share how their firm is working to address the issue. Cobie, Miriam, and Onay all agreed that the issue is one of the main initiatives for Clarion Partners, Goldman Sachs, and MSD Partners. All three firms have programs in place to help drive diversity among their employees, with the group consensus that diversity of thought leads to the best output for their clients. Specifically, Onay spoke about the relationships Clarion has with organizations like the Robert Toigo Foundation to recruit diverse talent. She shared that to make change we have to engage in uncomfortable conversations: “growth lies at the edge of our discomfort.” Cobie shared how MSD Partners has built a D&I committee focused on attracting, retaining, and engaging with diverse talent and invests in training to prevent unconscious biases when hiring. Finally, Miriam shared how Goldman is not only working to ensure diverse representation at the Analyst level, but how the firm was an innovator in requiring diversity on the boards of the company’s Goldman invests in. And with that, Adam thanked the panelists for giving their time and their insight to the 13th annual Real Estate Symposium.

Rebecca Bendetson ’21 is a second-year student at Columbia Business School, focusing on Real Estate and Finance. She graduated from Tufts University with a B.A. in Economics and minors in Chinese and Entrepreneurship. In the summer of 2020, Rebecca interned at Beacon Capital Partners as a Summer Associate in Acquisitions & Portfolio Management. Prior to business school, she was a consultant at the leading consumer consultancy, C Space, where she advised the world’s leading brands on how to be more customer centric in their strategy. 

Mark Gately ’21 is a second-year student at Columbia Business School pursuing his MBA with a concentration in Real Estate. He graduated from Villanova University with a B.A. in Communications and minors in Economics and Business. For the last 4 and a half years Mark worked for a Real Estate Developer in NYC. The majority of his work was heavily involved in the Essex Crossing Development on the Lower East Side.