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Pictured: David Sherman ’82, Roy March, Nicholas Bienstock ’96, and Professor Christopher Mayer
By Brian Feldman ’17 and Mark Abramowicz ’18
Roy March, Chief Executive Officer of Eastdil Secured, opened Columbia Business School’s 2016 Real Estate Symposium with a thorough overview of the past year’s investment activity and offered insights on the market’s direction. With more than $1.4 trillion in transactions over the life of his firm, he commented that “dollars are important, but the information from transactions is the real resource for real estate.”
With lingering concerns about market cyclicality, Mr. March highlighted that 2016 was truly an incredible year. It began with the collapse of oil prices and retrenchment of Chinese markets, paralyzing the transaction market early on. A brief recovery was then stymied by the surprising Brexit, followed by another unexpected, unprecedented “orange swan” when Trump became president-elect. And yet, amidst the uncertainty and predicted selloff, markets in general, and commercial real estate specifically have remained strong with solid fundamentals. Mr. March reinforced that the US economy continues to perform, with 2 million new jobs YTD and wages up, the dollar is at a 13-year high, and real estate prices are at pre-recession levels even as the Fed is set to raise rates.
While the beginning of the year spelled tragedy, deal flow has recovered to only be down 10% compared to 2015. Mr. March pointed out that debt is becoming more expensive, with 10 year notes up slightly. As a result, prices will decrease 1.5-2 percent. In order to maintain current valuations rents must increase 2 percent, which is not possible in all markets. Additionally, the bond market doesn’t like the prospect of inflation, but as Mr. March pointed out, it’s a good thing if rates are going up to reflect actual growth.
Mr. March suggested that this environment is resulting in a new norm of “lower and longer growth” as everyone chases yield globally. Capital from pension funds, sovereign wealth funds, and insurance companies across Asia, the Middle East, and Europe remain bullish on US investment. Offshore funds have more than $4 trillion of buying power, which they will look to deploy in equity and mezzanine lending. European underwriting standards have decreased to compete with US banks and chase yield.
In closing, these market forces will continue to increase prices compounded with a lack of new supply. US supply is 30% below long-term average levels and the pace of new construction is slowing. Supply will remain tempered for some time, leading to an even longer real estate runaway backed by strong fundamentals.
Brian Feldman ’17 is a second year student at Columbia Business School transitioning to real estate from a career in consulting and tech. Prior to business school he was at Amazon in Seattle working on predictive demand forecasting, operations and supply chain logistics. During business school he interned at Trammell Crow Companies in Philadelphia.
Mark Abramowicz ’18 is a first year student at Columbia Business School. He graduated from Tufts University in 2010 with a BS in Quantitative Economics and a minor in Entrepreneurship. Prior to Columbia Business School, he co-founded two real estate technology ventures in Boston, MA. He is the AVP of the Real Estate Association on campus and is pursuing opportunities in real estate investment and development.