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Speakers at a Times-sponsored outlook conference last week were hard-pressed to predict exactly how long the real estate industry’s current good times will continue.
But the experts, representing virtually every facet of commercial real estate, delivered a generally upbeat assessment of the industry’s prospects at the annual Midyear Real Estate Outlook conference, which was presented by the Beverly Hills-based Real Estate Conference Group and drew more than 1,000 attendees to the Century Plaza Hotel in Century City.
The sessions assessed the demand for new office, industrial and retail space, outlined prospects for new construction, examined changes in financing, explored the impact of real estate investment trusts on the industry, listed some of the opportunities in international markets and presented specifics of ambitious new developments such as the Playa Vista project in Marina del Rey and the expansion of the Farmers Market in the Fairfax district of Los Angeles.
In general, the speakers said they expect demand to remain strong in all sectors of the market, investors to remain bullish on real estate, and financing to remain readily available for purchases and for new construction.
However, they pointed out on a number of occasions that generalizing about the Los Angeles Basin is difficult because it consists of a series of markets, each with its own characteristics.
“It’s a submarket market,” said Brad Cox, senior managing director of Cushman & Wakefield of California, who was a member of the real estate brokers panel at the conference.
For example, the experts pointed out that office markets in West Los Angeles, Burbank and Glendale command some of the highest rents in years--and several speakers predicted those rents will climb to new heights. Yet downtown Los Angeles, while greatly improved, remains weak in comparison, with ample space available at low rates.
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The retail sector of the market provided another example of the difficulty of generalizing about commercial real estate in Los Angeles. Several speakers expressed concern that too much new retail space may be under construction in the region, yet developer Cliff Goldstein of J.H. Snyder pointed out that real estate is such a localized enterprise that new retail developments can still be lucrative in some neighborhoods. Rather than act on the basis of “macro-trends,” Goldstein said, Snyder develops on the basis of localized demand within submarkets.
Despite the optimism that marked the conference, the shadow of the early 1990s real estate crash loomed large over the assembly. The contrast between current conditions and those of the not-too-distant past emerged as a recurring theme, with many of the speakers underscoring the health of today’s market by comparing it with that of earlier this decade.
For example, moderator Bowen H. “Buzz” McCoy of McCoy Associates Inc., introducing a panel on opportunity funds, contrasted them with the “vulture funds” that formed during the down years.
As McCoy explained, the vulture funds were formed by investors who saw an opportunity to earn big returns by buying distressed properties at steeply discounted prices. Today’s opportunity funds, in a sense successors to the vulture funds, look for real estate investments that are expected to produce above-average returns. Typically, they’re funded by big institutional investors who can raise large sums of money and move quickly to buy targeted properties.
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The conference included a special developments panel, whose members described the specific obstacles each faced in pursuing projects that fall outside the realm of garden-variety commercial real estate developments.
Among the panel members were Peter B. Denniston, president of Playa Capital, and developer Rick J. Caruso, president of Caruso Affiliated Holdings.
Denniston, whose firm is developing the 1,087-acre Playa Vista site near Marina del Rey in a partnership with Maguire Thomas Partners, outlined plans for the project’s up to 13,000 townhouses and apartments, about 5 million square feet of commercial space and possibly the DreamWorks SKG movie studio.
Denniston said such ambitious projects “always take longer to get entitlements” than the developers hope for. Denniston said another lesson in the case of Playa Vista is that “bigger isn’t necessarily better than smaller when it comes to getting entitlements” for a project.
“It’s easier for groups to oppose one large project than a series of smaller ones,” Denniston said, a reference to the many challenges the Playa Vista project has faced from environmentalists opposed to construction in the vicinity of wetlands.
Caruso outlined his company’s plans for the Grove at Farmers Market, a 640,000-square-foot “lifestyle center” to the east and north of the existing Farmers Market in the Fairfax district. Caruso said his intent with the addition is to “honor the history of one of L.A.’s most revered institutions by embracing it” in design elements.
Throughout Thursday’s conference, rising commercial rents and climbing property prices invariably invited comparisons with the pre-crash conditions of the late 1980s and early 1990s. A recurring question at the conference was, “How far along are we in the real estate cycle?”
None of the experts claimed to know, and guesses ranged from early in the cycle to midway to well along.
The conference also included addresses by keynote speaker Nelson Rising of Catellus Development Corp. and featured speakers John C. Cushman III of Cushman Realty Corp. and Stan Ross of E&Y; Kenneth Leventhal Real Estate Group, whose assessments of the commercial real estate industry have been covered in detail in The Times in recent weeks.
