Mark Halloran
Director, GRS | Corteq
(732) 450-8960
[email protected]
Every year, the winter CREFC (CRE Finance Council) meeting is packed with great industry information and networking opportunities. The most recent one, which took place in Miami Jan. 8-10, was no different. The general mood and tenor was upbeat with attendees forecasting a strong 2018 CRE marketplace. The escape from frigid temperatures elsewhere in the country also served to buoy the mood.
The sessions I was able to attend shed some light on some relatively big shifts taking place in the commercial real industry right now.
It’s no secret that a lot is changing in the retail sector. Much of the discussion on a panel entitled “Paper, Plastic or Postal: The Future of Retail” had to do with a small company called Amazon that has shaken things up pretty seriously in several ways, including its climbing share of retail sales and its $13.7-billion acquisition of Whole Foods. It was fitting because one of the speakers the day before was Walter Robb, former co-chief executive officer of the grocer.
Much of the talk on the panel had to do with the impact Amazon has had on the grocery industry, and if we are headed to more online ordering and shopping of food and whether or not this could lead to more store closures that have already been plaguing the retail real estate sector.
However, some speakers pointed out that certain retailers, like the TJX Cos. chains, are performing very well with a minimal online presence. Plus, experiential retail, where shoppers interact with products, has proven to work well in many shopping centers. The once frowned upon tenant – exercise facilities – are now considered a valuable addition to the mix. But the continuation of department stores closing is making landlords play catch up, and for now, retail’s future is uncertain.
Also on the tech front, there was a panel session titled: “Bytes and Pieces: Blockchain Technology in CRE.”
We all read about bitcoin in the news, but what isn’t apparent is how it, and similar crypto-currencies, apply to commercial real estate. Some panelists said that by skirting traditional financing sources, transactions could get completed more quickly and make overseas purchases more palatable. For example, there is already a $330 million mixed-use project in Dubai that is accepting bitcoin for funding.
Deloitte, who was represented by one panelist, recently released a report that said the pluses to utilizing blockchain technology include: more deal transparency, direct and transactions without the need for a third party to mitigate, less possibility of potential fraud and other advantages.
No one said that every commercial real estate firm needs to jump on the blockchain bandwagon right now, but the overall consensus is that it needs to be studied by firms, so that they can make a determination as to what types of transactions are best suited for this medium. As we know, commercial real estate can be very slow to adapt to new technologies, so although this might be put into practice in the future, that doesn’t mean it’s right around the corner.
One topic discussed that is not necessarily new, but making a comeback to the industry after seemingly years of hibernation, is CLOs (collateralized loan obligations), during a panel called “CRE CLOs are Back…What’s Different this Time?”
Part of the reason for the interest in the topic, pointed out in a Commercial Observer report on the panel (page 12), is that in December Blackstone Group issued what is considered the largest CRE CLO since the recession, called BXMT 2017-FL1, valued at $1 billion. There were reportedly $8 billion in CRE CLO deals last year, and some panelists say that number could hit $14 billion in 2018.
In contrast to pre-recession times, when CLOs were used on highly-leveraged properties, this non-recourse financing is now primarily used for balance-sheet financing on deals. Most of the deals done in the current environment are floating-rate, short-term bridge loans. They are used for assets in transition and most today are centered around first lien mortgages.
But there are challenges. CRE CLOs can take a long time to put together and the cost of funding can shift if the market takes a downturn, which it has yet to, but not many saw that coming in 2007.
About GRS Group
GRS Group is a leading provider of commercial real estate (“CRE”) services worldwide. With offices across the United States, Europe, and affiliates around the globe, GRS Group provides local market knowledge with a global perspective for institutional real estate investors, occupiers and lenders worldwide. The GRS Group team has evaluated and advised on over $1 trillion in CRE transactions.
Through the company’s proprietary management process, Global Services Connection, GRS Group delivers an integrated suite of services including Financial Advisory, Transaction Management, Assessment and Title Insurance. We provide a single point of contact, capable of leveraging the GRS Group portfolio of companies and delivering customized solutions to assist our clients in achieving their investment goals.