Is it time for Americans to invade Europe just yet? Slow growth with low inflation and low interest rates will pervade the United States and United Kingdom economies in 1998. This according to Roger Bootle, group chief economist of HSBC Holdings Place USA. Bootle spoke as a keynoter before a group of about 900 American and European investors in Paris last month at the Urban Land Institute's Global Investors in European Real Estate conference held at the Louvre.
High atop Bootle's agenda was talk of anti-inflationary forces that are now at work on economies throughout the world. This is a phenomenon Bootle is credited with first exploring in his book, The Death of Inflation: Surviving and Thriving in the Zero Era.
According to Bootle, the major anti-inflationary forces at work today are: - Emerging market competition. - Corporate restructuring/downsizing. - New technology for labor savings. - Increased price sensitivity. - Governments and central banks are still paranoid about inflation.
Amazingly, Bootle predicts that interest rates are at or near their peak in both the United States and in Britain, and will actually trend on a downward path by yearend 1998. Right now, he thinks rates are still too high. "The world is on the brink of a breakdown of lower interest rates indeed," said Bootle.
Does that mean the European markets are ripe for American pickings? As always with international investing, the answer is both yes and no. If you're Sam Zell, you've already set up a European property fund to invest in Eastern Europe, which is experiencing what can be best described as a market correction or downturn. Or, if you're a major investment firm such as Goldman, Sachs, Lehman Brothers, Daiwa or Credit Suisse First Boston, you're using your London office as the jumping off point to the rest of European investment opportunities.
Back to Bootle's comments for a moment. Other major trends he sees in store for the U.S. and European economies include: - Slow growth - Continued low inflation - Lower interest rates - Lower bond yields - Stock markets in the west could weaken - The U.S. dollar is overvalued and will weaken this year and the yen will increase against it. - The Euro currency is still difficult to get ahold of - it may be strong initially, but the European Central Bank will not allow it to be strong against the dollar.
The major unknown in the worldwide economic condition is Asia (surprise). Bootle says the current crisis will have a negative impact on the gross domestic products of the United States (-.7%), Europe (-.5%) and Japan (-.9%0). But the total impact will be largely incumbent on how well the Japanese economy performs.
So according to Bootle, the overall outlook can be best described as: * Slower growth for the U.S. and U.K. economies. * A slower European recovery. * Japan remains feeble. * The Asian 7 will be mired in crisis.
Stay tuned for more.
Simon pulls surprising win in $5.8 billion deal for CPI In a move to further dominate America's regional mall business, Indianapolis-based Simon DeBartolo Group last month announced its winning bid for Corporate Property Investors (CPI), a privately held real estate investment trust based in New York.
There was no doubt that CPI was prime for the picking. In fact, it appears that Simon won out over competing firms Rouse Co. and Vornado Realty Trust, which made a joint venture bid for CPI.
Hitting an average of $385 in retail sales per square foot over all of its properties last year, CPI will be a dynamic complement to Simon's existing portfolio. After the acquisition is completed in the third quarter, Simon will own 222 retail properties and eight office buildings totaling some 175 million sq. ft. of gross leasable area. The transaction values CPI at about $5.8 billion. In the deal, CPI shareholders will receive $179 per share, or $4.805 billion, consisting of $90 in cash, $70 of common stock and $19 in 6.5% convertible preferred stock.
In addition to its attractive sales numbers and high-end segment, CPI's retail properties also average nearly 91% occupancy. Among its major holdings are the 1.4 million sq. ft. Lenox Square in Atlanta, the 1.35 million sq.ft. Metrocenter in Phoenix and the 1.6 million sq. ft. South Shore Plaza in Braintree, Mass.
Now Simon will virtually own Atlanta's major mall market, with Lennox Square and Phipps Plaza under its wing and major stakes in Town Center at Cobb, Gwinnett Place, and the Mall of Georgia, now under construction.
In addition to its retail holdings, CPI owns a number of quality office buildings, including the 1.6 million sq. ft. General Motors Building in Midtown Manhattan and the 350,000 sq. ft. Lenox Building in Atlanta.
As with any major purchase, the question now is, will the two work together? "These two companies are a perfect fit for each other," says Richard S. Sokolov, Simon's president and COO. "The CPI portfolio adds a significant presence in the Boston and Atlanta markets to the Simon portfolio, and adds to the existing Simon presence in such markets as the New York metropolitan area, California and Florida. Additionally, the preeminent CPI assets will fuel the already substantial revenue growth being realized by Simon's newly created Simon Brand Ventures consumer marketing division."
Merrill Lynch advised Simon DeBartolo on the deal, while Lazard, Freres & Co. and J.P. Morgan advised CPI.
Immediately following the CPI announcement, Simon DeBartolo Group reported record results for its 1997 fiscal year ended Dec. 31. It became the first public REIT to generate annual revenues in excess of $1 billion. And its funds from operations grew an astounding 49.6% to $258 million compared to $172.5 million in 1996.What's next for Simon and is it primed to do more? The betting here is that the company is just getting started. After all, it's only March ...
>From Asian Flu to Web 2000, CCIMs get ready "As economic fundamentals continue to strengthen, real estate has been a direct beneficiary," says Dewey Struble, CCIM, 1998 CIREI president, whose CCIM International Commercial Real Estate Conference, co-sponsored by NREI, is scheduled for June 11-13 at the Sheraton Hotel and Marina in San Diego.
The commercial investment industry has seen a gradual but positive repricing of real estate, with the U.S. economy doing its part to sustain optimal conditions for investor confidence. Attendees at the session "Investment Real Estate: Where is it in the Cycle?" will hear how much capital remains in the marketplace, whether buyers should be prepared to be long-term players and what the outlook is for sellers. Panelists including Craig Evans, CCIM, Cushman Realty, and Hugh Kelly, Landauer Associates, will address whether a potential deflation of real estate values is on the horizon and where the six major property markets are in the cycle.
In the session "How to Catch the Asian Flu and Get Healthy Returns," Alice Young of Kaye, Scholer, Fierman, Hays & Handler, New York, will discuss the Asian economic crisis and its effect on the U.S. real estate market. Which Asian countries are hardest hit, and are they now more likely to sell, buy or hold U.S. real estate? The session will include advice on international business negotiations and insight into cultural and legal differences.
Microsoft Senior Architectural Engineer Bret Arsenault will explain, during the session "Web 2000," that several changes in technology, infrastructure and social fabric will have to occur before the full economic promise of the World Wide Web can be realized. Arsenault will identify these changes, how they may be brought to fruition and who may lead these innovations.
Other speakers at the meeting will include Peter Pike, former Notre Dame football coach Lou Holtz, and authors Tom Morris and Harry Dent. Registration information is available at (800) 621-7027, ext.4489, or www.ccim.com.
New ULI primer explores impact of U.S. real estate You want to talk about your 900-pound gorillas ... All the Urban Land Institute and the National Realty Committee, two of the nation's foremost real estate organizations, wanted to do was try putting their arms around the state of real estate in the United States and its impact on important economic and social issues in this country.
The result of thousands of hours of work has led to the publication of America's Real Estate: Natural Resource, National Legacy. This 115-page, six-chapter book is thoughtfully presented as a primer on the importance of real estate in Americans' lives. Using concise, easy-to-understand writing and dramatic four-color photography throughout, it is an easy read for both the layman and advanced practitioner alike.
Consider this from the book's first paragraph: "Real estate capital generates one-fifth of the nation's gross domestic product. Commercial and residential real estate assets constitute almost half of the nation's domestic investment. No tangible capital asset is more important to the U.S. economy than real estate."
Chapter titles include Natural Resource, National Legacy; Cornerstone of Communities; Americans at Home; Building America; Our Nation's Investment; and The Real Estate Industry.
Publication of America's Real Estate was sponsored by Deloitte & Touche, LLP, Goldman, Sachs & Co., Lehman Brothers, Merrill Lynch & Co. and Morgan Stanley Realty.
The presentation of mere industry facts alone is often startlingly contextual. "The aggregate value of the nation's real estate stock - land, buildings and other fixed improvements - is over $20 trillion, or almost three times the value of the annual gross domestic product of the American economy." Certainly America's Real Estate has plenty of important facts to present, but it is in the subtle chapter headings that one finds the true impact of real estate, and of this book in general: "Real estate touches every life, every day. No resource is more pervasive in our society. Real estate is where we live. It is where we work. Real estate is how we live. It is the country's most important tangible capital asset. It is a major contributor to the American economy."
Much of the book's well-illustrated data is sourced back to 1994 and 1996, which gives America's Real Estate even greater credibility as a timely primer. Of particular note is an extensive treatment on "Our Nation's Investment," which provides a good overview of the state of the real estate capital markets and the influence of institutional ownership. It follows the growth of securitization and the commercial mortgage-backed securities (CMBS) industry, and provides good information onthe role of commercial banks, pension funds, life insurance companies and real estate investment trusts (REITs).
Interesting tidbits are interspersed throughout the book, including this gem about the nation's office market: "Buildings with more than 100,000 square feet make up about 2 percent of all office buildings but almost 39 percent of all commercial office space."
Thankfully, though, America's Real Estate spends time with a few property types that don't often fit neatly into the office, industrial, hotel, multifamily or retail box, including schools, hospitals, religious buildings and other non-residential buildings.
Another interesting treatment is the use of four case studies to better define snapshots of particular markets in time. For example, how does the flight of residents to suburban areas affect both the urban and suburban economies? And how do local governments react to both new development and dislocation? Here, the book explores Loudon County, Va., Riverside County, Calif., Dallas and New York, each a different and disparate market with its own unique dynamic.
Sometimes it is easy to forget some of the more simple yet sound realities of our business. Need we remember that real estate is the primary driver of tax revenue for local, state and federal governments? As the book states, "During 1994, real estate accounted for an estimated $293 billion in income tax and property and sales taxes, or about 23 percent of the total taxes collected from those sources by all levels of government."
Overall, America's Real Estate accomplishes something that is often quite hard to find these days - a thorough, concise and sound foundation that serves as a status report on the nation's built and unbuilt real estate environment.
For more information on obtaining a copy of America's Real Estate, write the Urban Land Institute at 1025 Thomas Jefferson Street, N.W., Suite 500-West, Washington, D.C. 20007. Or call them at (202) 624-7000.
D&T/NACORE study corporate reengineering The only thing constant is change. Case in point is the fact that 75% of corporate real estate executives surveyed recently indicated that their companies had undergone some form of reengineering in the past three years.
The findings were part of a benchmarking study jointly released by Deloitte & Touche LLP and the International Association of Corporate Real Estate Executives. More than 212 companies across the United States and Canada reveal their impetus for, and execution and results of, reengineering taking place in their companies in the report, Impact of Reengineering on Corporate Real Estate.
Of the companies that had undergone reengineering, the study found that 85% of the projects are still in progress, 2% were completed two years ago or longer, and 13% were completed in the past year or one year ago.
The decision to undertake reengineering was determined by corporate senior management 79% of the time, with the board of directors involved in about 20% of reengineering decisions, according to the report.
There's no doubt that reengineering affects space needs. Nearly two-thirds of the respondents indicated that space needs decreased as a result of reengineering. And almost 60% of respondents indicated that the type of space required is different; the study found that reengineering has led to the use of more open space environments and greater flexibility in the commitment for and use of space.
In the case of corporate real estate, the survey found that reengineering often leads to the outsourcing of responsibilities. Nearly 40% of respondents indicated that outsourcing had occurred, which is a far greater incidence than in years past, the report points out.
In the adjustment of the workforce, the study found that certain skills and characteristics will be more critical to the success of individuals retained in a department. Qualities which rated the most critical for success were superior customer service, a willingness to accept expanded responsibilities, proven performance and analytical skills. International experience, seniority and a willingness to relocate were traits and characteristics that proved unimportant.
For copies of the report, call the Deloitte & Touche Publications Request Line at (404) 220-1745.
BOMA, C&W team up to produce quarterly reports The Building Owners and Managers Association (BOMA) International, based in Washington, D.C., and Cushman & Wakefield Inc., New York, have teamed up to produce a new quarterly publication, BOMA/Cushman & Wakefield Market Intelligence Report, that studies North American vacancy rates, absorption rates, new construction statistics, rental rates and trend analysis for the office and industrial real estate markets.
"Competition is growing more fierce, and our demand for accurate, timely market statistics and capital market analysis is also escalating as we realize that information is crucial to success," said W.S. (Bill) Garland, president of BOMA International. "Additionally, the roles of asset managers and property managers are becoming intertwined - lending even more impetus to the need for a product that meets both constituencies' goals and gives detailed national statistics."
The January edition of Market Intelligence forecasts strong national markets in 1998.
"We are in a very healthy period for real estate markets, wherein low interest rates, availability of capital, low unemployment and slow and steady growth are combining to fuel strong markets," said Cushman & Wakefield President & CEO Arthur J. Mirante II.
In fact, activity through 1998 is expected to mirror the trend of the last eight quarters, according to Cushman & Wakefield Managing Director of Research Services Maria T. Sicola. Vacancy rates will continue to decline and rental rates will rise in tight markets. The bulk of construction will take place in the suburbs in response to steady demand and lack of available Class-A space. By year-end 1998, the national downtown vacancy rate will close the year marginally lower than the suburbs for the first time since fourth quarter 1993.
The BOMA/Cushman & Wakefield Market Intelligence report is available via subscription by calling BOMA International's Research Department at (202) 326-6366.