Heavily indebted commercial real estate owners and their highly exposed bankers are getting together in Midtown starting today for four days of mutual-support sessions.
The National Association of Real Estate Investor Trusts conference is an annual pilgrimage for 3,000 executives, investors and “industry partners” to make their case that better times loom ahead, at least for their company or client. An end-of-conference party at Mastro’s Steakhouse, inside the RXR-owned tower at 1285 Sixth Ave., is sponsored by Bank of Montreal, which has $70 billion in commercial real estate exposure.
Wall Street’s leading astrologer, Henry Weingarten, isn’t going to NAREIT’s investor conference. But he is going to three others this week. The managing director of The Astrologers Fund is also going to two breakfast meetings, a lunch, a dinner and four cocktail parties. All these events take place in Midtown, a short walk from his Murray Hill home.
“Where else can you do that?” he said. “It’s why New York is still the place people want to be.”
True as that is, the issue before NAREIT conference attendees is that fewer New Yorkers are going to the office regularly than even nine months ago. The conferees’ collective wish that interest rates would come down this year isn’t working out, either. The longer cuts are delayed, the tougher it gets for landlords to refinance as billions worth of debts come due.
“The malaise of REITland is understandable,” said Piper Sandler analyst Alexander Goldfarb, who noted investors are pricing levels of calamity last seen in 2008, when developer Harry Macklowe defaulted on billions worth of loans and was forced to hand over the GM Building.
Goldfarb bets the outcome won’t be so bleak this time. He argues federal regulators won’t force banks to foreclose on large numbers of dud properties because that would inflict avoidable losses on lenders and borrowers when loans can still be modified. As the market comes to understand this as the most likely scenario – which is also the best-imaginable under the circumstances — it “should relieve CRE investors of impending credit doom,” Goldfarb wrote.
What are the odds of such a gentle landing? Never mind looking to the stars, Weingarten said. Look to interest rates.
Heading into this year he thought the Federal Reserve would cut them two or maybe three times and the consensus was six. But inflation remains too high for the Fed to move and Weingarten said that, though the current 5.5% rate may be higher than many people remember, that was the average for decades.
“It all depends on what you’re used to,” he said.
Many landlords seem ill-equipped to cope with persistently high rates. Just about all sectors of the market rallied in reaction to April’s total solar eclipse, Weingarten said, but office REITs continue to underperform. The sector rose just 1.7% over the last 30 days compared to a 2.9% increase for the overall REIT index, Evercore ISI said.
Is this the right time to be buying? Weingarten said it is for a specific kind of real estate — gold mines — but it’s early to bet on rebound in office buildings.
“Their value? I can’t tell you,” he said.
Aaron Elstein , 2024-06-03 18:50:31
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