Today’s real estate opportunities seen as “just the beginning”
San Francisco Business Times - by Mark Calvey
The tidal wave of troubled properties that’s expected to swamp lenders, investors and real estate developers will create opportunities for investors with deep pockets, real estate executives said at a seminar in San Francisco Wednesday.
“The investment opportunities that we see today are just the beginning. The tidal wave has just started to hit the beach,” Michael Covarrubias, chairman and CEO of real estate firm TMG Partners told about 140 people attending the real estate investment seminar in San Francisco Wednesday. The program, conducted by angel-investor-network Keiretsu Forum, attracted several private investors looking for opportunities amid the wreckage.
TMG Partners is among those benefiting from the woes of others. Alameda County Superior Court recently named the firm as the receiver for three Emeryville buildings owned by a subsidiary of Houston-based Hines Interests. The Hines subsidiary defaulted on a $152 million loan.
For investors looking to profit from the real estate meltdown, Covarrubias said, “The key to the real estate business is, and always will be, timing.”
He says the bottom of this recession is especially hard to predict and that the unemployment picture is particularly worrisome since the real estate industry is driven by jobs, whether its office, retail or residential.
Bay Area real estate investors looking for opportunities in the next year or two should focus on the city of San Francisco given its geographic and political constraints to build, said Lynn Sedway, executive managing director of CBRE Consulting. She specifically said condominiums could be attractive investments, especially when purchased for less than their replacement cost, as is occurring in today’s market.
“The majority of profits will go to the first buyer,” she said, advising investors to be prepared to rent the condos until the market improves. She’s also seeing opportunities emerge among San Francisco hotels, given the huge drop in prices on recent sales. While citing San Francisco’s long-term draw for tourists, conventioneers and business travelers, she cautioned that 2010 will still be a tough year for hoteliers.
Looking overseas, David Gensler, principal and executive director of architecture firm Gensler, said China and India are among the most promising regions for their long-term growth. Gensler said his firm, founded in 1965 just as baby boomers were entering the work force, enjoyed robust growth over the years. He sees a similar wave of growth ahead for those doing business in China and India.
Investors at the seminar were advised to steer clear of retail-oriented real estate, unless it’s a project to convert it to another use.
“Retail is a grim picture. I’m really concerned about the retail market,” Sedway said. “Consumers are buying nothing, and some of that will carry forward. We’re not going back to the go-go days.”
Sedway falls into the camp that believes a fundamental shift is underway as American consumers, many of them aging baby boomers, are saving more and spending less. Others say the consumer will return to the malls once a recovery becomes more evident.
“I’m scared to death of retail,” TMG’s Covarrubias said. “Real estate has changed so dramatically. Consumers are saving.”
Covarrubias sees the Bay Area’s apartment market recovering first. He expects San Francisco’s office market to recover before Silicon Valley’s as the tech region looks for a “driver” to spur demand.
His audience appreciated a lighter moment when he made a reference to the movie, The Sixth Sense, in which a boy sees dead people.
“If you drive along Highway 101, you can say, ‘I see dead equity,’” he said.
SOURCE: http://triangle.bizjournals.com/triangle/othercities/sanfrancisco/stories/2009/08/17/daily45.html