Events MBA's CREF/Multifamily Housing Convention & Expo 2008 February 3-6, 2008 Walt Disney World Swan and Dolphin Orlando More Info 12th Annual ULI Europe Conference Competing for the Future: Real Estate in 2008 February 6, 2008 InterContinental Paris Le Grand Paris More Info Building a Sustainable Future: Trends, Opportunities, and Challenges February 13, 2008 Emirates Palace Abu Dhabi, UAE More Info Reinventing Retail: Community, Mixed-use, and Environment February 14-15, 2008 Wilshire Grand Hotel Los Angeles More Info Developing Resort, Second Home and Golf Course Communities February 25-26, 2008 Arizona Grand Resort Phoenix More Info

	1,900 employees 45 offices, 28 countries $59 billion in assets $78 billion served assets

 

Q&A: David Lichtenstein of The Lightstone Group

This month, the Global Real Estate Monitor connected with David Lichtenstein, founder and chairman of The Lightstone Group, to discuss the company's plans for 2008 and his outlook for the economy and the commercial real estate sector.

The Lightstone Group is one of the largest privately held real estate companies in the United States. Based in New York City, the company currently owns a portfolio of diversified properties in 46 states plus the District of Columbia, Canada, and Puerto Rico, spanning more than 18,000 residential units, 687 hotels and approximately 67 million square feet of office, industrial, and retail properties.

GLOBAL REAL ESTATE MONITOR: What are The Lightstone Group's initiatives for 2008?

DAVID LICHTENSTEIN: We're an acquisitions-based company so we're always looking for deals, and we're always open to acquisitions. But the lack of access to capital because of the current conditions in the capital markets makes acquisitions challenging today.

Until the capital markets open up, no one is making acquisitions because real estate doesn't trade at a very wide cap rate and the only way to make numbers work is to use debt. The large banks have left a huge void to finance large deals, so if we do any acquisitions this year, they'll be on a one-off basis.

For companies that are acquisitions —focused, this will be a "locust year" — like the Bible describes. I predict this year will be the lowest year in 15 years for property deals in our industry. But, I want to make it very clear — I don't believe there's an erosion of property fundamentals.

GREM: Speaking of property fundamentals, where do you see property values heading?

LICHTENSTEIN: That's an interesting question because they're impacted by the overall cost of financing. I expect the lower interest rates are going to put the commercial real estate industry in a real conundrum - the low interest rates will actually support commercial real estate pricing, and I don't think real estate values and cap rates will erode. Because of the interest rates, commercial real estate will have a much better year maintaining values than anyone anticipates, but most people haven't figured that out yet.

I also expect that values will be supported by international buyers. Because of the exchange rate, the U.S. is having a big sale on its commercial real estate - a sale like this, where property is 50 percent off, happens once in a lifetime. The foreigners who don't take advantage of this are losing a once in a lifetime opportunity.

GREM: Since acquisitions are challenging, what will The Lightstone Group focus on instead?

LICHTENSTEIN: This is an ideal time for housekeeping. When you have a year of little or no acquisitions, it's a good time to get yourself in shape, to learn and to do some brainstorming. We employ about 14,000 people and there's so much room for remarketing, repositioning, rebranding... there's always something to do.

GREM: For the past several years, there's been a trend in the industry for companies to own and operate only one property type, often focusing on one region or specific cities. Why are you interested in building a portfolio that encompasses many product types?

LICHTENSTEIN: Basically, it's a diversification play. Our portfolio is diversified both in terms of geography and sector. I think of it like fishing - you want to have a tackle box that has a lot of bait in it. If you go fishing and all you have is one type of bait in the box - let's say for trout - and the trout aren't out that day, you come home without anything. We never really know what's going to bite that day, so we stock our tackle box with all types of bait, which makes us more like an opportunity or hedge fund. Having multiple platforms has allowed us to fish in a variety of different places and conditions and makes us very flexible and ready to take advantage if there are opportunities.

GREM: The Lightstone Group was very active in 2007, completing more than $8.5 billion in acquisitions, the highlight being the acquisition of Extended Stay Hotels, which marked your entrance into the hospitality sector and made you the largest owner of mid-price extended-stay hotels in the U.S. Tell us about your portfolio and how it's performing.

LICHTENSTEIN: We have five platforms -hotel, retail, residential, office and industrial. We're not seeing much weakness anywhere in the portfolio - we're pretty much full across the board.

Our hotel platform is one of the largest in the world with almost 700 hotels that operate under five brands in the extended-stay segment: Extended Stay Deluxe, Extended Stay America, Homestead Studio Suites, StudioPlus, and Crossland. Thankfully, our hotels are doing very well, and we're finding that the tight economy is actually helping our hotel business. As the country goes into a recession, companies want to save money on their travel expenses. Since we're 20 to 30 percent below our competitors - about $20 less per night - a lot of companies that wouldn't take our calls a year ago (from a corporate booking standpoint) are now calling us.

Our retail platform includes strip malls and outlet malls, and again, we've been a little insulated from any economic pressures. When the economy goes into a recession, everyone is looking for a bargain but they still want those brand names so they're going to look at outlet malls like ours because, behind Simon Property Group, we're the largest landlord to some of the high end brand names.

On the apartment side, our portfolio is still strong - it hasn't been hit yet. Ironically, as new home construction has imploded and foreclosures are up, people are moving out of their homes and into apartments. Evictions are literally driving people into apartments.

The office and industrial side is the only place where we're seeing any softness - specifically, we're seeing a bit of a slowdown in leasing on the office side, which is only to be expected.

Copyright 2008, Penton Media.. All rights reserved. This article is protected by United States copyright and other intellectual property laws and may not be reproduced, rewritten, distributed, re-disseminated, transmitted, displayed, published or broadcast, directly or indirectly, in any medium without the prior written permission of Penton Media.