Four Quick Questions...
...with Sheridan “Schecky” Schechner
by Michele Lerner
1Do you anticipate in- creased foreign investment in REITs and commercial
real estate in 2010?
With respect to foreign investment in REITs and commercial real estate, two things are
happening. First, most people
offshore think U.S. real estate is
now attractively valued relative
to offshore real estate. From a
cyclical standpoint, U.S. real
estate is at an appealing point.
Second, due to the weak dollar,
foreign investors are increasingly interested in buying into
the U.S. Lots of people are out
there kicking the tires, particularly because of the weak dollar.
Foreign investors don’t tend to
buy distressed assets, though, so
they are more interested in either
an iconic building or in large assets compared to others in their
portfolio. They may not want to
Schechner is
Managing Director,
U.S. Head of Real
Estate Investment
Banking with
Barclays Capital
buy an undersold condominium
building in an overdeveloped
area, but, for example, if the GM
Building in New York City came
on the market, they would snap
it up. Also, there are considerable
supply hassles when you own
property overseas, so it is important for foreign investors to look
at the economies of scale.
Typically, foreign investors
will invest in gateway cities, so
you will see more of this type of
investment in New York City,
Washington, D.C., Boston,
Seattle, Los Angeles or San
Francisco than in the middle
of the country. For awhile there
was South American investment
in Florida, but this has slowed
because of the lack of interest in
distressed properties.
2How will the economic tur- moil of the past two years
impact REITs in the long term?
This really depends on a per-
son’s view of the resurgence
of the commercial mortgage-
backed securities (CMBS)
market. If you think things will
return to the way business was
done for the past 10 years, with
high leverage and very little
capital, then REITs will likely
return to being just a small part
of the investment landscape.
If you think that the lower le-
verage model like REITs will
become a more popular model,
then REITs will become even
more important.
3Are there any specific economic indicators we
should be watching in 2010
that will particularly impact
REITs? Are there any specific
REIT sectors which you anticipate doing really well in 2010?
Any that will be particularly
hurt in 2010?
A lot of this is just intuitive
reasoning. For example, retail
sales are an important indicator
to watch if you are invested in
regional malls or strip shopping
centers. If consumer confidence
rises and consumers start to spend
more, this can have a positive impact not only on the retail sector,
but also on the industrial sector,
because a huge portion of that
business involves distribution.
Job growth and job loss numbers are a major driver of office
space, because, naturally, when
