NAREIT Panelists Predict Gloom, Fear Investing and Speaker Looks at Election 2000

WASHINGTON, DC-Real estate professionals are heading back to work today after two full days of meetings and sessions at the NAREIT’s annual convention. Held at the hotel most known as being the spot where Reagan was shot, the Hilton Washington & Towers, the convention’s panelists weren’t painting a rosy picture of the future. While jokes were flying fast and furiously, particularly at the luncheon where Bob Woodward of The Washington Post lead an audience participation chat about the presidential race, the overall conference mood seemed cautiously pessimistic.

Samuel Zell, founder of Equity Group Investments, moderated a panel looking at current issues and making predictions. On the impact of technology, Zell asked, “Is this really just a bunch of [nonsense]?” Michael Kirby, co-founder of Green Street, Steve J. Buller, portfolio manager for Fidelity Real Estate Fund, and Jonathan Litt, director of Real Estate and Lodging Research at Paine Webber, all noted the drop in tech stocks. Litt says, “E-commerce is starting to get further a field.”

Zell then asked each for predictions. Gregory J. Whyte, Morgan Stanley Dean Witter’s head of the real estate and REIT equity research team, predicts ” a lot of consolidation.” “ The whole credit community has gone brain dead and doesn’t know how to assess.” Hemel says. “Rising interest rates will cause REIT prices to soften” Derrington adds, ” and the rising price of oil will push rents up. This all doesn’t bode terribly well for REITs.”

“Fund managers would rather play in a different sandbox than REITs” Buller says. “They want something hot, sexy.” Whyte notes, “We’ve eradicated the tax incentives and changed the way we compensate the lender. There’s a built-in fear now. People see the risks. The disasters of the late 80s are fresh in their mind.” On the more negative side, however, he says, “Inflation is something that concerns me. I’m surprised we’re not seeing more of it now.” All predicted a rise in inflation.

Hemel was the first to use the word “recession” in his predictions and all agreed. “I tend to be more bearish in my predictions,” Derrington says. “I think we’re going into a recession and it could be at the end of next year. I think it’s very eminent.”

At a later session on raising capital in the marketplace, panelist Lisa Sarajian, a managing director in Standard & Poor’s Real Estate Finance Group, says investors fear real estate. “We’ve seen in the past that what’s brought down the bank was a real estate deal. Investors want to see real estate companies discipline themselves,” she says. “Right now it’s coming from external forces.”

“We have had some black eyes over the years,” moderator Jay P. Leupp, managing director for Robertson Stephens, responds, “but this is an industry that is maturing. The sector has done a fairly good job of disciplining itself.”

Woodward’s chat had audience members weigh in on who would benefit the market more if elected this fall. While the majority raised their hands in favor of Bush, the majority agreed heartily with one man who shouted out that he only supported Bush because he was the only Republican running. Clinton’s economic plan of 1993 made it onto the list of reasons for the current economic boom. Some noted Gore could succeed because he could be viewed as more likely to sustain those policies. Woodward would not make predictions, but in answering another question seemed to indicate the possible negative impact on the economy of Bush’s plans, such as his health care plan.

Overall the panelists seemed to feel that a recession was inevitable and there was going to be a cooling of the market. None seemed to be too rattled by it and seemed to think as bad as it might get, it would not be comparable to the recession of Bush’s father’s administration.