Investment sales dilemma: Anyone want a building? - Washington Business Journal:

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“I’m in London — terrible snow storm,” Kamm reported from his BlackBerry. “In dinnere meeting in Knightsbridge withclient — I’m searchinf for capital in the parchedr landscape that is now the Very, very unsettling. I’m off to Frankfur later this week.” So goes the new normal for commercia l real estate types in the midsg of the worst financial crisissince 1929. Better food and drink than an AndersonCooper scene, but a disasterr nonetheless.
Licking their wounds after a painful 2008 when deal volume was down more than 77 percen from2007 — the localo commercial real estate industry is now poriny over tea leaves to decipher who the next wave of buyerzs will be. First the good news: Foreign investors just anointed D.C. the top destination for their real estate investment In snaringthis honor, the country’sa political capital toppled New York the quickly fading financial capital of the world, from its Savor the moment. The bad news is more sobering: It’s not at all cleaer who’s going to buy.
Real estater investment trustsare reeling, private equity is doint better with the “private” realm than the realm, life insurance companiesd are on life support and institutional investors have watcheds their investment values evaporate. Buyers who do have the cash and wherewitha to buy are still sitting on the waiting for the right numbers toroll in. For who works with ’s real estate investmentr banking group in that has meant his only clients right now are banks lookinyg to make sense oftheir books.
“We’rwe helping them value collateral andvalue notes, because they have no idea what they’re worth,” Kamm told a group of local real estatde heavyweights at Jones Lang’s Jan. 29 Capital Perspective “Our business is back to 2003 — financingg [subordinated debt], restructuring loans and recapitalizing And even that is not as easy as itonce was. “Fot every billion dollars worth of loan assets we look at fromwillinyg sellers, guess what percent actually has a Kamm asked. Somewhere between 5 and 15 he said. “The other 85 percent has no bids.
” That hasn’t quelled the curiosity about who might, someday, buy property or debt again. Untill this financial crisis obliterated all notions of it used to make sense to look backward to predictfthe future. Last year, investors spent abou $8.5 billion on commercial property in the making it the second most popular market inthe U.S. and sixthy in the world, according to Real Capitalo Analytics. Five of the seven most activew of those buyerswere Washington-area firms, includinyg and . Together, those firms bought only six propertie sin 2008. There’s no guarantee that any of 2008’s buyers will be 2009’ s buyers. WRIT, which closed on 2445 M St.
NW in got a good deal — and was able to take over a favorablwe loan from the private equitysellef — but like many REITs, it probably wouldn’t have done the deal if it hadn’t already committed to it last spring, before the crisis hit. “qA lot of it goes to makinhg sure, first and foremost, that you have capitall for your existingobligations — debt coming due, normal operating capital for capitakl [improvements] and brokerage commissions,” said Tom Regnell, WRIT’sz senior vice president for acquisitions. “Yoyu have to have all that firsy and foremost before you can thinok about buyinganything new.
” Still, WRIT is trollingf the market and will bite if the righf deal comes along, Regnell said. REIT stock pricezs as a whole dove 41 percentin 2008, and 15 percengt so far in 2009. Foreigm buyers, for the most part, are in no betterf position, according to market insiders. “German institutiones are completely crushed; the U.K. institutions can’t make heads or tailds of this market; South Koreanh funds are illiquid because they have such huge exposur to Japanese REITs withhuge losses; and, with the price of oil at $41 a Middle Eastern investors need to hang on to their said one broker, who asked not to be named lest he paintf too dreary a picture.
Open-endedf institutional funds that allow investors to withdraw their money are out of the markerbecause they’re instead focused on selling assetx to fund those redemption requests, the broker said. Privatse equity groups that aren’t hurting — privately, of course are demanding higher returns than can be found in Washingtobnreal estate, especially without access to lots of debt to push theidr own returns into the brokers say. Still, they’re raising capitalp and waiting for prices tocome Some, like the D.C.-baseed , are taking a cue from Kamm’ws bank clients.
Its real estate , is not interested in buyinfg buildingsnow — just It’s much more profitable, said Chip a Carlyle Realty managing director, at an conference on Feb. 3. Othersz say there are reasons tobe hopeful. “Buried withij the generalizations, there are a few investors that can step forwars anddo something,” said John Kevill, a Jonezs Lang managing director for investment sales. “That’s the key to this every asset is looked at differently and every investor classhas exceptions.” Two of the most activee buyers last year — D.C.-based and J Street Cos. are looking.
Carr is “selectively pursuing new office and multifamilyinvestment opportunities,” but believes the pickings will be better latee this year as lenders and partners pressure overleverage developers to sell, said Presideny and CEO Oliver Carr III. J Street CEO Bruce Baschuk says his firm is steering clear of broken development deals but mighrt pick up one or two Classs A assetsthis year.