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jeffrey thanks for joining us today
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oh it's my pleasure steve tell me about
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your plans
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in the u.s uh well in the u.s
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well we'll start take a step one step
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back as you know we started the company
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with an asia focused
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put together a platform that is the
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largest owner largest developer of
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logistics facilities in china
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largest owner logistics facilities in
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japan largest overall in asia
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and but with the customer concentration
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we have
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in asia those customers both non-asian
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companies you know companies
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like dhl companies like unilever
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companies like adidas
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that have requirements elsewhere in the
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world it makes sense to help serve their
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requirements
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in other major markets obviously the us
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being a very very large market
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so we see that opportunities there we
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think it's part of a
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long-term global footprint and
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intend to execute on that as it makes
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sense and what about
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in china that's that's an area that's
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got a growing
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real estate market particularly
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commercial real estate some would say
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even
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looking bubble-like what's your opinion
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on that the bubble that people talk
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about is really focused
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on residential more particularly
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high-end residential
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in very limited markets it's shanghai
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it's potentially beijing
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clearly hong kong worries me from a
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bubble standpoint and there's been some
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articles about that recently
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that's where people really talk about a
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bubble in valuations
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within the industrial sector we see no
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signs of a bubble in fact
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our leasing velocity is the strongest
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it's ever been we're 150 percent
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above our previous records prior to this
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year over the last few months
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so it's very very strong uh we're seeing
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good customer demand
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we're seeing a limited amount of
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competition uh rising occupancy rates
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um it's a it's a real real strong market
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there really is strong
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gdp growth and more importantly within
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our sector domestic
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with the warehouse sector domestic
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distribution is really what drives
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demand
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86 of our product is focused on domestic
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distribution
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and that's what the chinese government
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is really trying to foster and grow
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that's very interesting now so in china
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would that
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suggest that commercial real estate
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prices
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are rising versus the case in the u.s
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where things are contracting could you
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compare the two i'd say over the last 18
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months they've been
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relatively stable to up slightly
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very market contrast but then again you
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have a market contrast between
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a country where you have eight and a
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half percent gdp growth in a country
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where you've had
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significant negative gdp growth for
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almost two years and finally
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potentially coming out of the the
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deepest recession since the great
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depression
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so it makes sense you also have the
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difference where
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there was much more speculation
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from a commercial development standpoint
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save for a couple of major cities where
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you do have like beijing some over
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building in the office sector and and
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high-end res
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high-end hotel sector or lodging sector
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um you've had you know and
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you know a difference in the credit
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markets with the
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amount of securitization the cmbs that
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was done the 85 90 percent the mez loans
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the level of sophistication that
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you know created problems um because
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people had were buying buildings
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financing buildings on the expectation
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that
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rents would continue to rise and
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eventually they'd be able to make their
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debt service
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obviously that's a game front would risk
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that's not turning out very well
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and today that creates opportunities is
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that one reason why you're timing
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for looking at the us uh well it's so
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there's a
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business drive there's an overall
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business reason to be in the u.s and be
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in western europe to serve customers
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on a global basis think about our
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customer sets very very different
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far different than residential if you're
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multi-family developer or owner
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the chances of leasing an apartment to
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someone in
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paris and shanghai are very very small
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the chances of leasing to dhl in both
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those markets are extremely high if you
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serve
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them well or a unilever or a png or you
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can go on and on the nippon expresses
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the world
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so we do have global customers which is
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even different than retail retail you
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have zara and h
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m that are kind of have a global
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footprint
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our customers are really all truly
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global players major manufacturers
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major logistics companies so it does
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make sense then from a timing standpoint
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if you have an opportunity to buy in
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when things are
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distressed when you buy at good pricing
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clearly far far better pricing than you
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would have seen two
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three years ago the opportunity could be
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tremendous
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well well let's talk about that pricing
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i think it was in september you were
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quoted as saying that you thought
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prices had further to fall in commercial
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real estate
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still feel that way or still feel that
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way uh if you look at the
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wall of debt you know the 1.4 trillion
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1.3 trillion of cmbs coming to in the
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next three and a half years
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if you look at you know the amount of
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loans on the bank you know mid-size
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banks
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books i mean anything below the top 10
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banks or so that has been
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extended and you know with the you know
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the the expectation that someday it'll
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be a performing loan again it's making
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debt service
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extend and pretend exactly i was trying
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to not to say that but that's exactly
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right
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um you know there's more pain to come
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in that regard there has there's been
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more
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support on pricing because there's been
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so few transactions and you've got this
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wall of private equity capital that was
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raised that has subscription agreements
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that are expiring that people want to
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get out
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so when a good asset comes on the market
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with decent term on it so you have some
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cash flow going out four years five
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years six years seven years there's more
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bidders
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that you know there's more buyers and
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there are sellers right now so it's
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artificially
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kept pricing at us at a certain level
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but i think there there is further to
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fall with those
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with the debt situation the way it is
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and
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you know just the overall loss of jobs i
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mean you've lost seven million jobs
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nobody talks about that coming back
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even the most optimistic politicians
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don't talk about bringing those jobs
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back very fast
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so you've got you know an inherently
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weak job situation
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i don't know how that could bode well
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the fundamentals aren't good
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that's for sure let me just put it under
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the microscope a little bit more
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uh moody's crp index is down somewhere
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around 40
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i haven't seen the latest but that you
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know within the last six weeks or so
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since you know 2008 i guess
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right or maybe that's over two years but
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in any case
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um where do you think that index would
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be six months from now
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i think most of the fall has happened
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you know you know
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can it go down a little bit you know
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maybe i'm overly optimistic you know i
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try you know i don't
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by nature not draconian and you know the
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sky's falling and you know the world's
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coming to an end
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um it's hard to survive long-term being
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that way
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but it's you know i think you've seen
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most of the value
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fall but there may be a little bit left
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so it's not a bad time now and for the
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right opportunities
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it could make sense but you could see
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some continued weakness
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so when it comes to opportunities is
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there a way to slice and dice that by
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geographic or region or by industry
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how how do you when you say industry
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right around they talk uh i guess uh you
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know geographically
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you're in the logistics business so i
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would say i would guess that new york
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and
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and newark and la would be very
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interesting too exactly
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um but industry-wise i don't know if
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you're all over the map or where you
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think the opportunities might be
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i think you know there's going to be
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opportunities to buy
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geographically on a very diverse basis
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within
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the u.s and within europe for that
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matter uh but in my mind
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if things if you believe that values are
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attractive
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you m when everything's on sale you
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might as well buy the best
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kind of like walking into um department
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store and they're having a 70 80
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off sale you it's not that values are
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down 70 80 percent
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right don't take it that way but you
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might as well look at the better markets
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look at the la
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the southern california's the northern
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california's the seattle's really the
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coastal markets
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um you know i kind of went through the
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strategy with somebody
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and after i drew on a map they said
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you just drew a circle around the
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outside of the u.s i said i looked and
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said yeah i guess my seven-year-old
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daughter could have done that because
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you kind of went around and went new
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york business yeah new york new jersey
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went down to washington you know dc
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baltimore corridor came down to atlanta
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because atlanta really is a proxy for
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the port of savannah which i think is
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the winner with the panama canal
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being widened you bring it into event
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savannah but why keep anything in
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savannah nobody you know you don't have
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any population density you got good
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great trail can you
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create great rail connections and
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trucking connections by almost
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um taking you up to atlanta so you might
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as well
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take your containers off in savannah
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drop them on rail cars
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take them up to atlanta distribute out
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there then getting down to florida
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coming across
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to potentially houston market again to
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port market and coming back in around
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the la so you've drawn a circle around
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the us
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and again it's the port markets port and
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population densities
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the bargains that you're talking about
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would you describe them as a
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perhaps once in a generation opportunity
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would you would you would you go that
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strong would you there were some great
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bargains in the early 90s
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whether the bargains will reach that
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level again or not i'm not certain
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um you know it will take further price
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destruction or you know price you know
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value destruction to get to those kind
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of levels or those kind of values again
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but let's hope that we don't see
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anything this bad again
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in our careers and let's hope that we
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have very long lives and very long
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careers but it doesn't get this bad
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again
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how's the refinancing situation changing
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that is a great question because it's
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shocked me in the last three weeks
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how much better the debt markets have
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gotten
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whereas it was
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difficult to do anything above 50
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leverage
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uh three months ago now you're starting
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to see lenders with very competitive
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pricing at 65
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leverage um and you're seeing spreads
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come in dramatically
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i mean right now you could do
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unstabilized assets 60 65 percent
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financing at six to seven percent fixed
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for ten years
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which in my career is historically low
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rates i mean
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what do you attribute that to well one
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you have very very low base rates
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i mean the treasuries are extremely low
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so the spreads are still high on
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historical basis but they're much lower
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than they were
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three four months ago i think actually
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what the treasurer did with tauf
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has helped um i know they got criticized
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i know it took him a long time to get
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anything done
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but they've broken seemingly broken
00:11:00
somewhat of a log jam by
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supporting some tough issuances and it's
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helped out in the it seemingly has
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helped out in the real estate credit
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markets
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now i've had friends that complained
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that there's still no debt available at
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85
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leverage levels and that's what they're
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used to getting but i'm not sure that
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that's the way real estate really should
00:11:17
be played i mean that's
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there's inherent risk in that you know
00:11:21
there was a lot of 85 90 95 percent
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leverage deals in the past
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and that's you know i don't know that
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the government should support that or i
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don't know that you know
00:11:30
really we want the public sector to find
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ways to replace that debt
00:11:34
if there's readily available data 50 60
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leverage levels what we need to find is
00:11:39
equity to bridge the gap you know two
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problems at play here one you have
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85 leveraged assets that have fallen 35
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percent value so you're negative 20 on
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your equity to begin with
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now you have this new value the 65 cents
00:11:50
of the dollar and people are only
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willing to
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lend you 60 cents on that so you get 40
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cents of
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of debt versus your 100 before so you're
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at 40 percent on the original
00:11:59
there's an equity gap one thing that we
00:12:01
spent some time on is ferpta
00:12:03
talking to people in washington
00:12:07
we've seen a lot of receptivity on ferpa
00:12:09
relief
00:12:10
and ferpa is the foreign investment real
00:12:12
property tax act
00:12:14
which was passed in the 1980s when there
00:12:15
were a few senators that were scared the
00:12:17
japanese were going to buy all the
00:12:18
farmland in the u.s
00:12:19
didn't happen wasn't going to happen but
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it was a little xenophobia
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and now it's onerous for foreigners to
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buy real estate
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and they're treated differently if they
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own reit stock than they are if they own
00:12:30
ge stock it's tax wars why should that
00:12:33
be if they want to buy
00:12:34
you know my friend steve frost vernado
00:12:36
stock
00:12:37
why should that be taxed any different
00:12:38
than buying ge stock it shouldn't be
00:12:41
if they want to own real estate in a
00:12:42
fund that's put together
00:12:44
by blackstone or put together by me or
00:12:46
by anyone else
00:12:48
why should that be taxed differently we
00:12:49
need that equity in the u.s desperately
00:12:51
in the real estate markets to help out
00:12:53
the markets
00:12:54
to bridge that gap to make real estate
00:12:57
less leveraged and to bridge the pain
00:12:59
and i think we're getting you know
00:13:00
they're getting it in washington and
00:13:01
hopefully we'll get some relief there
00:13:03
just to go back to one thing you
00:13:04
mentioned at the beginning of your last
00:13:06
answer
00:13:07
um you talked about leverage now at 65
00:13:11
percent
00:13:11
people complain some friends are
00:13:13
complaining that it's not 85
00:13:14
isn't it those upper levels that help to
00:13:16
contribute to the problem to begin with
00:13:18
oh it is
00:13:18
too liquid too much leveraging i don't
00:13:21
think that we should have 85 percent
00:13:22
debt out there that
00:13:24
i don't think clearly i don't think the
00:13:26
government should do anything to support
00:13:28
the return of 85 leverage you know if
00:13:30
we've helped the credit markets
00:13:31
reestablish themselves at the 50-60
00:13:33
percent level
00:13:34
now we need to help bring more equity
00:13:35
into the market one last question
00:13:39
you talked about what's happened to
00:13:40
interest rates at least in the last
00:13:42
three weeks we'll see if it lasts but
00:13:44
i find it interesting that that happened
00:13:46
despite dubai world not that
00:13:48
dubai world is a neutron bomb but
00:13:50
certainly you think that would have
00:13:51
something
00:13:52
uh you would think in the market it
00:13:55
hasn't had you know within
00:13:56
you know debt rates or real estate uh
00:13:58
debt capital marks the usage has little
00:14:00
effect obviously it's had a massive
00:14:02
effect on greece
00:14:03
and the sovereign bonds there i think
00:14:05
people's perception of risk
00:14:07
has changed a little bit but you know
00:14:10
you know
00:14:10
dubai bought some great assets but there
00:14:12
was a lot a lot of leverage involved in
00:14:14
it
00:14:14
but they do have some great assets so
00:14:16
and you know some smart people there so
00:14:18
hopefully they'll work their way out of
00:14:19
it
00:14:19
thanks very much for joining us thank
00:14:21
you i appreciate it thank you
00:14:35
you
