COMMERCIAL
Talk about a change in attitude.
A year ago, most of the attendees and speakers at the IMN Real Estate Opportunity & Private Fund Investing Forum in Laguna Beach spent their time commenting excitedly about the money pouring into commercial real estate, driving up prices and pushing capitalization rates to record lows.
Not anymore. Thanks to the ongoing credit crunch, there was a healthy amount of gallows humor from investors, developers and banker attendees at this year’s conference, held late last month at the Montage Laguna Beach.
A popular session at this year’s conference focused on reworking loans and work-out transactions for deals that had soured in the past few quarters. One chief executive of a Dallas-based development firm said, half-jokingly, that he was “reworking his resume.”
Six months ago, lenders “said ‘We don’t have a problem.’ Three months ago, they said ‘Maybe we should talk.’ And now they realize that they have a real problem,” said Christopher Bley, principal for Los Angeles-based Turnkey Development Group LLC.
Vulture funds such as Turnkey Development attending the event were among the optimistic attendees. Bley’s company is targeting land holdings with 75 to 300 lots in Southern California.
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3100 Bristol St.: Arden Realty consolidating out-of-state offices here |
Lenders looking to offload land in the region think they can get out of deals with a loss less than 20%, when in reality they’re facing losses in the 40% to 50% range, Bley said.
In the case of one Phoenix-area condominium development, “We’ve gone from ‘We’ll make a lot of money, to we’ll make a little money, hopefully,'” said Ryan Millsap, principal for apartment developer Aslan Realty Group, based in Irvine.
Attendees used the event to ratchet up their networking circles. Developers looking to find loans for construction projects are finding a lot fewer banks that will do them. And those banks are demanding increased recourse, said Ryan Smith, vice president for Newport Beach-based Buchanan Street Partners.
Banks that still are providing these types of construction loans are effectively looking at their top 10 developers, and are knocking off the bottom five, another attendee said.
It’s not all doom and gloom for investors and developers with solid investors and strong relationships in the industry, said Smith, whose investment bank has been targeting motivated sellers and institutional investors when it considers buys these days.
“We might be looking at the best investment climate over the next 12 months that we’ve seen in years,” Smith said.
Arden Moves
Los Angeles-based property manager and developer Arden Realty Inc. is consolidating some out-of-state operations into its relocated Orange County office.
Arden’s regional and property management offices just moved to its recently acquired South Coast Executive building in Costa Mesa. The company bought the building, at 3100 Bristol St., last June, along with 15 other properties in the county. Arden counted about 40 people in its local property management group last year.
The company’s also relocating its Arizona property management offices, which had been based in Scottsdale, to the South Coast building, officials said.
After posting a fourth-quarter loss of $1.25 billion,its largest quarterly loss ever,Lennar Corp.’s fourth-quarter earning call with analysts late last month was expected to be tough.
It turned out to be a lot more upbeat than expected, as analysts spoke positively about Miami-based Lennar’s aggressive attempts to generate cash and sell off land.
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The country’s second-largest homebuilder,whose day-to-day operations are largely run out of its Aliso Viejo office,saw several stock upgrades after the call. The company now counts a market value of about $2.8 billion.
The company is focusing on positioning itself to be prepared when the market turns around,whenever that may be,Chief Executive Stuart Miller said.
Analysts appear to like the strategy. The company’s “balance sheet is a lot stronger than the market gives (Lennar) credit for,” said Ivy Zelman of Beachwood, Ohio-based Zelman and Associates, during the conference call.
The fourth-quarter losses included a charge of $1.18 billion to write down the value of land.
“You can’t make money on land that’s improperly valued,” said Miller.
Miller said that Jon Jaffe, the company’s chief operating officer and local head, had been acting as the builder’s “plow horse” in recent months, figuring out what to keep and sell.
Jaffe also did much of the work in December’s sale of 11,000 lots for $525 million to a venture of Lennar and the real estate arm of Morgan Stanley, according to Miller.
