Commercial Real Estate Finance

On Tuesday, I had the opportunity to join 100+ professionals from the real estate community at the monthly luncheon of the Cornell Real Estate Council‘s Philadelphia chapter. This event, attended by both Cornellians and non-Cornellians (i.e., me), was the last one before the organization’s summer hiatus. The event featured a panel of CFOs from five major firms: CubeSmart (YSI), Pennsylvania REIT (PEI), Morgan Properties (not actually a REIT yet), Hersha Hospitality Trust (HT), and Brandywine Realty Trust (BDN), and offered a comprehensive look at the operations of an American REIT.

I suspect CFOs are uniquely qualified to discuss the activities of their REITs. Not only do CFOs have a first-hand view of the corporation’s strategy and decision-making, they get to see the results of these moves through the universal language of–you guessed it–dollars.

The REITs in attendance were quite diverse. While a few niche markets were absent, the largest real estate sectors were represented by a CFO: office, hospitality, multifamily, self-storage, retail.

When asked about their favorite asset classes, multifamily was a clear winner, but the panelists showed a great deal of interest in niche property types, as well. Healthcare in particular was lauded as a major and increasingly profitable real estate sector. As one of the executives pointed out (and I’m paraphrasing here),

healthcare is an industry that will never go away, because people will spend as much as they have to in order to care for their loved ones.

It’s a good point. Few sectors seem as impervious as healthcare property.

Despite the long-term confidence toward healthcare and senior living, and current enthusiasm for multifamily, the CFOs were not without their fears. Though bullish on healthcare properties, for example, they aired concern over the uncertainty and ever-increasing cost of healthcare, a concern relevant to both the workings of an individual company (or REIT) and the strength of the U.S. economy as a whole.

In fact, the political future of the country was a major concern for the CFOs on the panel. This seems natural, considering the enormous impact government regulation has on industry, interest rates, taxes, etc. Granted, the real estate industry has a voice or two in Washington, with trade organizations like NAR and NAREIT working on their behalf, but the complexity of politics, partisan affiliations, and competing interests is keeping things uncertain.

As the media loves to point out, the U.S. government has reached an impasse on numerous, important issues. It’s the political gridlock that has business people frustrated. As one member of the panel points out: the REIT world isn’t worried about who will win the next election; they’re worried about the uncertainty of the overall political system.

*

Sorry to end that on a somewhat sour note, but be sure to check back for Part II of my report from CREC’s Panel, to be published this Monday! I promise to keep it more upbeat.

#CRE #finance

One Response to “A CFO’s Perspective – Part I”