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Lesson Learned: “Liquidity is really important. ‘Cash is king’ is what they always say, and that was never clearer than in the last 18 months.” Challenges and Opportunities: “If you take a look at the sectors that we’re in and look at the income statements of those companies, far and away the
single largest expense item is labor. The high unemployment rate
is resulting in the most favorable labor environment for our operators. They’ve actually been able to manage through the last 12
months quite well by dealing with revenue pressures being more
than offset with respect to lower labor costs.
The other thing that’s out there that hasn’t been finalized yet
is health care reform. How that shakes out will reorder the deck
chairs as well.”
Role of REITs: “I think we’re about to enter the finest hour for
the publicly traded REIT industry. You haven’t seen the overlev-erage with publicly traded REITs that you’ve seen in the private
world with respect to a lot of the private equity hedge funds that
were put together. The liquidity that exists, particularly the larger
REITs, has never been more sought after than it is now.
REITs are a nice hedge against inflation, the prospects for
which have increased in the next couple years in light of the government intervention. REITs and real estate, in general, are nice
hedges against the weakening dollar.”
LAURENCE GELLER, President & CEO
• Strategic Hotels & Resorts, Inc. (NYSE: BEE)
• Sector: Lodging
Lesson Learned: “I have learned never to confuse brains and a bull market. I think that the public market’s empha- sis on pipeline growth was perhaps omething that was overheated. It al- lowed generally for the REI T industry to set aside some degree of prudence. Lesson learned—stick to your knitting
and your core strategies and markets.”
Challenges and Opportunities: “Lodging lags GDP. We may
see a GDP recovery in one quarter, but lodging’s recovery will
be later than that, as people take time to ramp up. Also, there
has been an almost lemming-like trend toward rate diminution.
It has been far more than was ever conceivably needed. For the
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first half of 2010, we will be seeing the lagging effect with rates
at unnecessarily low levels.”
Role of REITs: “REITs certainly have an edge in the coming
years. At the moment, they have the cheapest access to capital.
The public markets should see exponential growth, and private
equity will want to get to them. Most of the REITs I see in the
lodging world that have a clear reason for being may be bruised,
but they will survive and will thrive in a supply-constrained environment for the next five years.”
MICHAEL GLIMCHER, Chairman & CEO
• Glimcher Realty Trust (NYSE: GRT)
• Sector: Regional Malls
Lesson Learned: “There is a balance between leverage and equity, and it got out of control in recent years. Leverage is healthy, but like everything else, best in moderation.” Challenges and Opportunities: “The biggest challenge is the consumer coming back, and they will, once the
economy stabilizes. And with very little supply coming online
these large malls are solid and here to stay.”
Role of REITs: “There is not a more efficient mechanism for
investing in real estate than REITs.”
RONALD HAVNER, JR., Vice Chairman, President & CEO
• Public Storage (NYSE: PSA) • Sector: Self Storage
Lesson Learned: “For us, it has been an affirmation of our business model. We learned a lot of tough lessons in the early 1990s during the S&L crisis, particularly that you need to fund your balance sheet with long-term capital. And so we em- barked on a plan of using perpetual pre- ferred stock and minimized use of debt.
When this crisis hit, we were prepared for it.”
Challenges and Opportunities: “Self storage is recession-resistant, not recession-proof. We have seen a decline in demand,
but the fundamental drivers in our business (events in people’s
lives) continue to take place each and every day.
Another challenge for us is proper deployment of capital. We
are sitting on $700 million of cash with really no debt maturities.
In 2010 we will retain $300 million to $350 million in additional
cash. We are eagerly awaiting the financial institutions to cleanse
their balance sheets to provide us with what will be, over the next
five or six years, a really good acquisition environment.”
Role of REITs: “The REIT model has been validated in 2009 as
the vehicle to consolidate commercial real estate. I believe we are
going to go through another wave of consolidation of private real
estate into public hands like what happened in the early 1990s.”
J. FLAHER TY: MAX GERBER
