What’s in This Season

SW 20090312 NY 4967 0 300x200 What’s in This Season

The Commercial Observer:

What’s the best sector of commercial real estate to be investing in right now?

Mr. Neibart: You still have to remain very cautious. What we’re spending a lot of our time on is the multi-tenant segment. We’re also looking at hotels and also the recapping of partnerships that are short of money.


Why those three sectors?

To us, those three represent the best opportunities. The office market, as far as we’re concerned, continues to have declining rents and increasing expenses, and we’re still concerned with retail. It would have to stabilize, and the consumer has to stabilize in terms of the unemployment rates starting to drop again and consumer confidence coming back in the market so they’ll buy.


I’m surprised to hear you say hotels.

Well, the only reason that we’re interested in hotels is that they had been beaten down so dramatically in value that they’re trading at very, very significant discounts from their highs of 2007 and 2008. We think that when that corporate market comes back, hotels will do very well.


I suppose I’ve noticed some hotel transactions in the past few months.

I think we’re seeing a few. But I think what you’re seeing is a lot of distressed hotels selling. We think that we have the expertise and the proper asset managers that are our partners will do a very good job in repositioning these hotel assets. That’s really what it’s all about. Hotels are in a daily fight to gain market share, and it must have the marketing and sales force on the ground to do that.


What are some of the least rewarding sectors right now?

We’re certainly going to stay away from the specialty sector—resort hotels, land development, single-family housing. We think the industrial market is a slow market. Our thinking on the industrial market is that rents are not rising, that there’s plenty of supply for industrial tenants to choose from. So, in terms of being a business where value and money can be applied, we think there’s little chance of getting the proper returns that we need for this capital.


When you talk about industrial, are you talking about everything from light manufacturing to power plants?

Yeah. From flex space to light industrial to warehouse.


Even in New York, where zoning changes in parts of Brooklyn have limited the amount of space dedicated to industrial usages?

I was answering on a national basis. New York, for industrial, will always outperform the national averages.


How are foreign investments doing in New York? Still a big market?

We think it will increase dramatically in 2010. We’re having a lot of visits from foreign investors looking to invest their money in the States. We truly think that it’s picking up and if, in fact, we get some Congressional legislation changed—are you familiar with FIRPTA [Foreign Investment in Real Property Tax Act]? If, in fact, it’s amended to reduce the withholding taxes on foreign investment, we think that can be a very significant boon to foreign investing. We think if it ever were to happen, it would open the floodgates for foreign investment.


Where are these foreign investors coming from?

I think they’re certainly coming from the sovereign wealth funds, who continue to do it, and from the Far East. And the activity is picking up from Europe, Australia. … It will be a big boon for business if we’re able to reduce the taxes on foreign investors.


How long do you predict that boom can last?

I think it can have a long run. I think there’s a lot of capital now starting to realize that investing in real estate [is smart] as opposed to keeping their money in their banking account at no return.


Are you seeing the reverse happening, with Americans investing abroad?

Not really. I think there’s issues in currency and not really having the proper local knowledge. So I’m not seeing a whole lot of that.


How has AREA Property Partners fared since January, transaction-wise?

We’ve been making some mezzanine loans on trophy assets, we’ve been bidding on some multifamily and hotel properties and those have been our activities so far.


Is there a lot of mezzanine loan activity right now? I was under the impression that there wasn’t.

Not much, but we have a mezzanine fund and we were able to get very outstanding returns when we invested, and the quality of the product we’re investing in is top-rate.


I imagine those loans are very sought after right now?

Well, yeah … Or, that I can’t answer.


When you began your career in 1974, you were at Prudential. What’s the difference between the mortgage loan business back then and today?

Well, it’s interesting. Back then we only invested in quality assets, only lent on the best-Park Avenue, Madison Avenue, Fifth Avenue—and it was a very good way to invest. When I first started, New York City was in the depths of the greatest financial crisis it had ever witnessed; so it’s interesting that 35 years later, we see a few of those signs, but not nearly what was happening then. But we’re starting to see some vacancies and some defaults by borrowers, so it has a small resemblance of what happened then.


You’re a past president of the National Association of Industrial and Office Parks. As a New Yorker, what could you possibly know about office parks?

Well, when I was president of it, I was chief operating officer of the Robert Martin Company in Westchester County, and we had about 8 million square feet of office and industrial parks.


Will office parks ever invade New York City?

Not in New York City. The land’s too valuable.


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