Second Time a Charm for Saul Ewing’s New England Real Estate Conference

BOSTON — Saul Ewing followed up last year’s well-received CRE conference debut with their second annual platform, “Real Estate In 2013 – “Recovery, Real or Imagined?” at the Westin Waterfront Hotel this Wednesday, with the panel discussions once more featuring strong industry lineups. The law firm again assembled a plethora of topnotch talent from heavyweight firms representing both the local scene and the far-reaching corners of the globe, as well as tabbing Massachusetts Executive Office of Housing and Economic Development chief Gregory Bialecki as keynote speaker. Given last year’s auspicious debut, organizers fretted over a sophomore slump for the event, but were pleased with both the number of attendees—about 200, the same number as last November—as well as the enthusiastic response from the gathering.

Following remarks from Saul Ewing Managing Partner Richard D. Gass, Sally E. Michael, Vice Office Managing Partner of the Boston Office, introduced a panel of mostly local players active in the Greater Boston market to address the question of “The Present – Where are the Opportunities Now?” The panel included Peter A. Merrigan, president of Bostonbased Taurus Investment Holdings, which cashed out its Newbury Street portfolio to Atlanta, GAbased Jamestown Properties in the nation’s largest retail property sale last year; Davis Cos. CEO Jonathan Davis, the only returning panel member from last year’s conference and an extremely active buyer and seller in the local CRE scene; Mark C. Weld, managing director at Clarion Partners, who this week broke ground on a Texas development and purchased a 163-unit, Class-A residential community in Montclair, New Jersey; Joshua Wechter, director of acquisitions for the aforementioned Jamestown; and Daniel DeMarco, president of Campanelli, who delivered the best line of the morning when he contrasted his firm with Taurus and Jamestown, stating, “they’re active on seven continents, we’re active in seven counties.”

Merrigan said opportunities abound, but Taurus, which largely finances its deals through partnerships with German investors, is currently exploring them outside of the Boston market, buying mostly distressed properties in Rhode Island, Tampa, Ohio and a large asset in Long Island City, plus overseas activity in Berlin. “On a macro level there is plenty to find,” Merrigan said, “but you’ve got to keep your eyes open and your relationships growing. We kind of know (what property we want) when we see it, and we’re not heavily research-driven, because we’re experience driven.” Merrigan also stresses the importance of having a local presence or partnership when selecting a property, a common theme heard throughout the day. “We have boots on the ground in a lot of different places, so we have local operators and Taurus people in all the different markets” he conveyed. Davis continued the theme of local presence, stating that “early in my career I could get up in the morning and drive to whatever property we were working on,” but increasingly says the firm relies on consultants and specialists.

Davis added that his company has become “less of an operating company and more of a capital allocator.” One change he made was adding a specialist who was formerly a CMBS authority at Putnam Investments, who helps the firm identify distressed properties for investment. “We’ve accessed a lot of properties by finding out where the problems are,” he revealed, and also confessed to having struggled with the sale of 1 and 3 Burlington Woods, feeling like he had left 20 percent of the deal’s value on the table when the firm cashed out this spring. “The cash flow was really starting and the buildings are really performing now, but an investor came along and offered us a 5.5 percent cap rate, and we felt that was a pretty (good deal).”

DeMarco revealed in his introduction that Campanelli has been “trying to work our way into the multi-family over the past year,” and also joked that the only reason he was on the panel was to prevent Davis from closing on a deal for a property that that the firms are directly competing to acquire. DeMarco also said that “in the last couple of years, a significant number of deals have come from private sellers that are selling for a reason that goes beyond the value of the real estate to them, where it’s more of a balance sheet issue.”

Jamestown’s Wechter stressed two key points, one the value of being a long-term holder of assets. “Some of the deals that we’re doing may not look (so great) now, but in three to four years they will,” he says, a scenario that could be applied to the Newbury Street purchase as the economy improves. The second is the ability of an investor to move quickly in a market with limited opportunity, which he feels Jamestown accomplished by building a good inhouse operating platform. Clarion Partners Weld agreed with the need to be able to strike when deals present themselves. “We’re seeing (a lot) of opportunities, but the one trend is that we’ve had to react quickly, sometimes too quickly. So if you’re flying in and out, that’s (a risky strategy).” Weld also predicts cap rates are going to continue to go down, and speculated that the recovery is still in its nascent stages. “We’re in the fourth inning of this recovery, but the (price of assets) is still significantly below replacement cost.”

The day’s second panel discussion, “The Future – Finding Debt and Equity in Today’s Economy,” drew on a group of experts from more distant venues than Greater Boston. The group included Michael Edelman, Senior VP of Production Management at Beech Street Capital in Washington, DC; Jason Pendergist, head of Commercial Term Lending – East, from the New York City of JPMorgan; Christine Rohrbeck, an analyst with the Baupost Group’s Boston office; Daniel Lisser, managing director at Johnson Capital’s New York City office and Mario Valdivia from the Miami office of Independencia Asset Management, the Chilebased fund manager.

Edelman reported that most of the action he is seeing is—not surprisingly—in multifamily deals, and for the same well documented reasons. There is a shortage of supply, especially in the Northeast, and lending is still more easily accessed. There are also more people renting by choice, he reports, as young people especially want to have the mobility to move where jobs are instead of being tied to one community by home ownership. With rents being driven up and multifamily becoming the favored asset class, investors are upgrading Class B and C properties, Edelman says, primarily by adding amenities such as storage and concierge services.

Rohrbeck says Baupost is also investing in multifamily projects, but cautions the segment is “a little frothy”. She said the yields from these investments have been low, especially given the potential risk of interest rates going up, and she frets job growth is not keeping up with pricing. “We’re taking a view of healthy skepticism toward pockets of seeming recovery,” Rohrbeck told the audience. “We are not seeing the fundamentals in line with the growth in pricing. So I think people betting on the recovery are seeing more growth than there actually is.”

Saul Ewing’s Michael was ebullient in her assessment of the event when contacted afterwards. “We had a great crowd, we had a wonderful turnout, and there was lots of energy in the room,” said Michaels. She was also pleased with the reception of the “hypotheticals” portion of the opening segment, where panel members weighed in on four mythical Greater Boston properties after going through due diligence provided by the organizers. “We used it as a springboard and it was a great way for us to hear their thoughts about how they analyze opportunities,” says Michaels.