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View From The Top 9th Annual
October 3, 2016              
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Global Capital, the U.S. Economy and West Coast Real Estate Market

Top 10 Takeaways from the Ninth Annual Allen Matkins View From the Top

This year has seen fluctuating Asian economies, global immigration and EU power struggles, Brexit, and an unprecedented U.S. presidential election season. What does that mean for real estate investment? The experts who spoke at the Allen Matkins Ninth annual View From the Top real estate summit break it all down. Here’s what you need to know for the next 12-18 months.

  1. The U.S. economy continues to be quite good. Employment is up, year-over-year wage growth is 2%, and the Federal Reserve is likely to raise interest rates by December, if not sooner. Current theme: “Don’t Worry, Be Happy.”
  2. One of the biggest international trends is the global search for yield. Negative interest rates have driven demand for bonds and guaranteed returns, but bond terms have changed and healthy offerings are oversubscribed.
  3. Global pension funds, which typically need return rates of 7 to 7.5%, are panicked. EU banks lost half their value due to a negative rate environment. U.S. bonds have the highest yields, and investors can’t buy enough of them. Even a 100-year bond offering was oversubscribed, and perpetual bonds are becoming more common. While the U.S. stock market is strong and presents no worries, the bond market remains a powerful economic force for long-term investment and security.
  4. The global and U.S. economy are pushing investors into real estate, and global pension and other foreign funds are increasing their allocations in this market, which traditionally has represented a fraction of investments, though foreign investors are still learning the market. REIT balance sheets are as strong as they have ever been.
  5. U.S. real estate is benefitting from an enormous flow of overseas capital. Much of it is centered in urban centers (NY, SF, LA, Seattle) and in ultra employee-focused West Coast tech hubs. “We are the safest market in the world, and are getting better deals.”
  6. WeWork, the co-sharing office space company, is transforming tech-hub commercial leasing. “Co-working is here to stay. And capital likes to follow tech and job growth.” WeWork is so strong it’s the anchor tenant in West Coast urban tech clusters, which are more attractive to Millennials than traditional suburban office park developments.
  7. Tech companies, whose mantra is “employees, employees, employees” rather than “location, location, location” (other than a predilection for dynamic, transit-friendly urban environments that will please those employees) are perhaps the most demanding tenants. They are willing to design cost-is-not-an-object workspaces that cater to Millennials. These are texture-rich, social, often dog-friendly, communal v office-centric environments, contain abundant outdoor spaces, and are laden with amenities (gyms, yoga rooms, etc.). These tenants prefer vibrant, low-rise urban environments. Techs are changing the construction and leasing environment more than any factor, barring access to capital.
  8. There is a westward trend of capital. The West Coast tech hubs are driving significant investment, both in commercial and multi-family real estate sectors. Housing in these areas remain scarce, and commercial and multifamily developments near transit are premier investments. “We are kicking some serious East Coast tail here, and it’s all about transit. The fundamentals are pretty darn good up and down the West Coast.” The San Francisco Trans-Bay terminal project is just one example of this trend.
  9. Downtown LA and the Tri-Cities of Burbank, Pasadena and Glendale are seeing incredible growth and investor interest. Existing properties are being successfully reclad and rehabbed for today’s tenant. Money spent on improvements and the resulting time off the market are showing incredible returns. Cranes dominate the downtown LA skyline. 
  10. The growth and transformation of downtown LA as a residential and cultural center continues to fuel investment. “The amenities in this market are unbelievable,” an equation for success as companies turn from location (other than transit) to pleasing employees with amenity-laden workplaces and vibrant local environments. LA sidewalks are no longer rolling up at 5 PM.

The consensus of all speakers was that the results of the U.S. presidential race will have little if any affect on local, regional, U.S. or global investment. So don’t worry, be happy.

 

Anton N. Natsis Anton N. Natsis
Partner
Real Estate | Real Estate Finance | Construction | Construction Law | Office | Real Estate Transactions
Century City
(310) 788-2430
(310) 788-2410 (fax)
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