More than 150 ULI Triangle members joined Moderator Jim Spaeth, Director, UNC Wood Center for Real Estate at Kenan-Flagler and panelists Travis Anderson, Managing Director, HFF Capital Markets, Lee Roberts, Principal, SharpVue Capital, Jennings Glenn, CFO, Kane Realty Corporation and Stewart Patch, Vice President, BNC Bank for a discussion on the state of the capital markets.
Take aways from the program included:
- Biggest surprises in 2016: President Donald J. Trump and the fact that the Fed increased interest rates only once.
- Real Estate Market Cycle: In reflecting upon the typical 18-year real estate cycle, panelists saw mixed signals. Macroeconomics indicate that real estate is reaching the peak of the cycle, but the Triangle region still shows signs of expansion with with positive job growth and lots of money (mostly equity) chasing lots of deals.
- Opportunities? Panelists felt that increased financial regulations have depressed bank lending and view the Fed’s pledge to overhaul Dodd-Frank as positive for the industry. Lee Roberts cautioned that regulation changes take a long time and any changes likely won’t impact real estate for several years. Jennings Glenn observed that “renters by choice” is a new target market in this area, helping to keep apartments filled.
- Worries? Increasing interest and cap rates are worrying (generally, movement in cap rates follow interest rates). Panelists also complained that the Triangle region lacks robust data on supply and absorption, making market predictions difficult. HB2 has hurt the business climate in North Carolina, and geopolitical issues are increasingly of concern. Jennings Glenn mentioned that two years ago a project could get 70-75% leverage, which has now dropped to 60%. Barriers to financing a project are increasing.
- Overall, panelists felt that President Trump won’t hurt real estate unless we experienced an “orange swan” event.
- Favorite Asset Class? Industrial and self-storage were high on everyone’s list. Self-storage is additionally attractive because it can be built inexpensively, making it possible to receive a good return while holding the land for a higher-value development later. The few spec office spaces constructed in the Triangle have performed well, although risk for spec is high. Student housing has been robust as has mixed use. Panelists agreed that retail holds no excitement. However, Jennings Glenn mentioned a new vertical mix of uses which included retail on the ground level, followed by a fulfillment center, topped by multi-family, essentially combining lack-luster retail with attractive industrial
- Predictions for the future? Most panelists predicted interest rate hikes. Larger banks will continue to pull out of real estate deals letting equity continue to fill the void. One panelist mentioned that developers/owners should be wary of a flattening market and start thinking about exit strategies. National brands will continue to be sensitive to expanding here due to HB2.
- The final uplifting note: Luckily, the Triangle’s four economic fundamentals of Education, Technology, Government and Healthcare are not prone to cycles and will continue to protect our market from wild swings.