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commercial real estate you know for the
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purpose of this panel is going to be
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dominated by investable income producing
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product uh
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typically in the developed countries
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there for the u.s and in europe all
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right so with the exception of somebody
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like jeff uh you know with a lot of his
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uh product
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uh
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in china and and the rest of asia
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it's difficult to find investable income
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producing real estate in some parts of
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the world especially the developing
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nations where much real estate
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activities focused on
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housing uh you can also throw uh
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hospitality in there
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which falls kind of between the
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categories so as far as fundamentals of
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commercial real estate uh i would say
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listen they're they're they are weak and
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uh we're we're looking for one of your
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mini ped
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multiped shoes to drop
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uh pretty much around the uh at least in
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the developed world
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uh
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right now jobs are you know being lost
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at a decreasing pace that's the good
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news so we're seeing some recovery but
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but there are those of us who are the
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uh pessimists who who think that there
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could be another leg down due to the
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withdrawal of the methadone uh we were
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on the cocaine now on the methadone and
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let's see how we do and that's when
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that's removed from our uh from our
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system
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and uh so i'm very concerned about jobs
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and and uh household formation in the
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developed countries which drive so much
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of our real estate so we don't see
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pricing power uh in the u.s or in europe
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in in favor of uh the landlords we see
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the pricing power in the face of tenants
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those of you who are negotiating for
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office space or negotiating for retail
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space and negotiating
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for a rental apartment pretty much
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in the u.s and in europe just throughout
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you're still able to drive a bargain and
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i don't see that improving i do see that
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the credit markets have improved and
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that is doing something to
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buy
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capital values for the moment but we can
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get into that later so i distinguish
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between the fundamentals in the capital
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markets okay
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jeffrey
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yeah it's
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you know i think barnes summed it up
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pretty well
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if you look around the world and ever
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your different parts of the cycle
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in different different geographies
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around the world you know clearly in
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china
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the downturn was
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significant but not the way it was in
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europe or the us or the americas or or
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in europe um we saw leasing slow in the
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first quarter there never was an
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official recession but people were
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scared to make any sort of decision i
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mean clearly our leasing volumes of new
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space went down 60 70 percent uh q1
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january february very slow they're now
00:02:54
back up to record levels we're 150
00:02:57
percent of our leasing velocity that we
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were pre-leaving crisis
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uh that's a combination the economy
00:03:02
coming back strong a lack of competition
00:03:04
and quite frankly a strong management
00:03:06
team on the ground good product and
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doing the right things from an execution
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standpoint um you compare and contrast
00:03:11
that to something like japan where
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things are a little bit slower
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we've been in defensive posture there
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maintaining a high accuracy 99 plus
00:03:19
occupancy so there's still activity to
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still ability but you've got to be more
00:03:22
defensive you're not taking a very
00:03:23
aggressive stance there go to europe
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central europe has been
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very very difficult eastern europe has
00:03:29
been more difficult than that and you
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know it's going to be a while there's
00:03:33
there's you know you have the you know
00:03:35
the dubai situation doesn't help uh
00:03:38
emerging markets at all
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uh it's it's hard it's it's harmful
00:03:41
because now you've got people you know
00:03:43
credit watch or worse on greece and
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other
00:03:46
countries that had lesser credit
00:03:48
profiles and that's gonna you know
00:03:50
the impact of that you know you look at
00:03:52
the impact that a
00:03:54
financial institution had on the world
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economy
00:03:56
a little bit over a year ago
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think about the impact that a country
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potentially could have if you talk about
00:04:01
a second you know another shoe dropping
00:04:03
that could be extremely significant
00:04:06
uh in the u.s the credit markets have
00:04:10
loosened up more than i ever thought
00:04:11
they would over the last three weeks
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it's pretty incredible the bar i mean
00:04:15
borrow cheaper than i think barton and i
00:04:16
ever remember in our careers today uh
00:04:19
that being said it's at reasonable
00:04:21
leverage levels it's not at 80 85 so
00:04:23
that those that are highly levered it's
00:04:25
not going to help them because there's a
00:04:27
huge equity gap still because you've got
00:04:29
values down 35 percent potentially going
00:04:31
lower as barton said and you had people
00:04:33
that leveraged 85 well guess what it's
00:04:35
pretty simple math if you had 85
00:04:36
leverage and your values go down 35
00:04:39
you've got negative 20 leverage and
00:04:40
somebody's only willing to
00:04:42
lend 60 on the new value there's a
00:04:44
massive amount of equity needed
00:04:46
that being said
00:04:48
you know
00:04:49
it could be painful um the sooner we go
00:04:51
through that pain in the u.s reset the
00:04:53
bar the better off everyone's going to
00:04:54
be and you move forward and it's kind of
00:04:56
like rtc days all over again
00:04:59
very how cheering yeah let me just let
00:05:01
me just touch on one one point you made
00:05:02
about you mentioned the greek uh credit
00:05:05
rating what to a private investor or a
00:05:08
you know to a investor with a global
00:05:09
posture what does the credit rating of a
00:05:12
of a country of its sovereign debt
00:05:14
issuance have to do with
00:05:16
buying an office tower downtown athens
00:05:19
uh well you'd want to look get us you
00:05:21
know clearly you want to be to spread
00:05:22
over the sovereign debt
00:05:24
because
00:05:26
you're inve you're in that currency
00:05:28
um you know when we first when i first
00:05:30
went to mexico in
00:05:33
1995
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96
00:05:36
there was a 500 basis point spread
00:05:38
between u.s treasuries
00:05:40
and mexican treasuries
00:05:42
okay so you thought assumed at that
00:05:43
point if the
00:05:45
good industrial asset was a eight and a
00:05:47
half or nine cap in the u.s
00:05:49
commensurate asset in mexico should be
00:05:51
14 15. i mean you're taking that same
00:05:54
sovereign it's a sovereign risk issue
00:05:56
um that was one proxy for pricing it all
00:05:59
of a sudden when you know assets in
00:06:01
mexico were the same price we're within
00:06:02
50 bips
00:06:04
of u.s assets that was that was a
00:06:07
problem i mean people forgot about risk
00:06:09
and willing to chase
00:06:11
50 basis points a yield that takes
00:06:12
substantially more risk than they ever
00:06:14
should have okay
00:06:27
you
