Recolumn/LK1st/mark2nd
By ELIZABETH HAYES
Staff Reporter
The Business Journal’s recent third-quarter real estate report examined the industry’s future in Los Angeles, paying specific attention to what kind of development will take place and where it will occur.
But what about the future of deal making and financing? Given the uncertainties of the last few weeks including tightening credit and renegotiated deals it’s anyone’s guess.
“The cycle seems to have changed before we ever overbuilt,” said David Feingold, managing director of Citicorp Real Estate Inc. in Los Angeles. “This is a financial phenomenon, not a real estate or hard-asset phenomenon.”
Yet present turmoil aside, several local real estate prognosticators agree on a few things: Wall Street, real estate investment trusts and good old-fashioned deal making are here to stay and brokers are not an endangered species.
“Public markets will continue to grow, but you’ll see a bigger, more sophisticated private equity market. You may even see private equity offerings online,” said Stan Ross, vice chair and managing partner at E & Y; Kenneth Leventhal Real Estate Group.
Maybe so, but don’t count out public financing yet, said Bowen McCoy, owner of Buzz McCoy Associates, which does strategic counseling for real estate companies.
In the next 10 to 15 years, “public markets will be even more important” than they are today, according to McCoy. There could be $200 billion a year of real estate financing nationally through the public markets, he said. (By contrast, the first six months of 1998 saw $30 billion worth of transactions in commercial mortgage-backed securities.)
The excesses of the ’80s, when borrowers easily could get loans to cover virtually all the costs of a real estate development, have resulted in a far more disciplined market, said David Blenko, managing director of El Segundo-based Haverford Financial.
And Blenko believes such discipline will increase, as large lenders specialize in the less risky loan pieces, as opposed to the generally riskier equity portion of a deal.
“In five to 10 years, there are going to be big commodity debt sources, maybe conduits or Wall Street people, maybe banks,” Blenko said.
REITs and Wall Street also will act as governors to prevent overbuilding, because they are accountable to shareholders, said Lew Horne, L.A. regional manager with CB Richard Ellis.
“That influence will make for a more stable and healthy real estate environment in the future,” Horne said.
Feingold said he expects a continuation of the trend toward the institutionalization of real estate, with pension funds, insurance companies and REITs continuing to acquire a greater share of properties.
“Those that can access the cheapest capital will be successful,” he said.
Indeed, rather than declining in influence, the nation’s REITs will undergo significant expansion, said John Long, managing partner of El Segundo-based Highridge Partners. “I see REITs being larger, consolidations continuing to happen,” Long said.
And while commercial real estate will go online, that doesn’t spell the demise of the broker, Horne said. It’s just that their job descriptions will change to incorporate more interpretation and due diligence.
“It’s not so much having the information, but being able to decipher it. Brokers have to be more consultants, access sophisticated, analytical work,” Horne said.
Developers eye the marina
The director of the county Department of Beaches and Harbors has short-listed two developers for a planned retail-entertainment project in Marina del Rey: San Diego-based OliverMcMillan and Phoenix-based Vestar Development Co.
The Small Craft Harbor Commission will consider at its Oct. 26 meeting whether to go forward with those two, and then make a recommendation to the County Board of Supervisors. If the board agrees, the two developers would then submit more detailed plans for consideration, said Roger Moliere, lease specialist for the department.
Both already have submitted conceptual plans for water-themed projects that would include shops, restaurants and pedestrian promenades. The developments would sit on 20 acres of waterside property and encompass between 160,000 and 250,000 square feet, Moliere said.
“The idea is to open up the waterfront and kick off a new round of development in the marina,” he said.
OliverMcMillan’s conceptual plans call for a V-shaped water channel through the project and a plaza. Vestar’s has a Venetian look, with campanile and arcade and a platform extending into the water for concerts. Both accommodate water taxis.
Both developers are known quantities in the L.A. area. OliverMcMillan plans to break ground early next year on a 500,000-square-foot retail and entertainment center at Queensway Bay in Long Beach.
And Vestar is developing the Long Beach Towne Center, a 100-acre mall that will contain the first AutoNation in L.A. County and a 26-screen theater. It is also teaming with Kilroy Realty Corp. to build an office-retail complex in Burbank.
Department director Stan Wisniewski also is recommending that the commission ask three developers to submit more detailed plans for a hotel at the other end of the marina. They are: a joint venture between Trammell Crow Residential and Neptune Marina; Lincoln Property Co.; and T/W Marina Apartments. All three happen to be redeveloping apartments adjacent to the site, Moliere said.
Kaufman regains top spot
How quickly things change in the homebuilding industry. Kaufman & Broad Home Corp., recently dethroned by Lennar Homes as the largest homebuilder in L.A. County, will now be the biggest in the nation, with its planned acquisition of family-owned Lewis Homes of Upland for $409 million in cash and stock. The combined company expects to build 22,000 homes next year, up from 15,000 this year.
Staff Reporter Elizabeth Hayes can be reached at (323) 549-5225 ext. 229.
