The Smartest ‘Guy’ in the Room: Deloitte’s Guy Langford

Guy Langford, accounting principal at Deloitte & Touche LLP, is a member of the firm’s Mergers & Acquisitions Transaction Services team and is both Deloitte’s national M&A real estate leader and head of its Northeast real estate practice. Based in New York, Mr. Langford works with financial sponsors, corporate buyers and other clients on complex real estate transactions. Mr. Langford spoke to The Commercial Observer last week about his role at Deloitte and the current state of the market.

The Commercial Observer: Could you give us an overview of your role and what you do at Deloitte?

Mr. Langford: I am an M&A partner by background, and I spend all my time focused on the real estate and lodging sectors. So anything that’s ‘bricks and sticks’ and land, I get looped into to help my clients—more on the buy side, but also on the sell side as well. It ranges from individual assets to pools of assets to companies that hold assets. It runs the gamut from private equity sponsors, sovereign wealth funds and REITs. I spend a lot of time working with market participants, more on a transactional basis.

With REITs, are you seeing anything in particular that’s changing?

REITs are clearly the belle of the ball right now. They’re getting a lot of attention. It’s easier for primary and secondary raises to occur. I think we have seen some examples of this already, where we see opco and propco structures being created so the propcos can get access to public markets. So, an entity with an operating component which has an underlying real estate operation is giving thought to the attributes of the underlying real estate, whether they can put that in a separate vehicle that is a REIT, then take the REIT public. There’s definitely a demand for REIT securities right now.

langford photoAs an accountant, what’s your opinion on the state of the real estate market?

The glass is half full on commercial real estate. There is an overall feeling or tone of optimism, maybe with some caution around it. There are definitely positive signs within the lending markets. If you have decent-quality assets in good geographies where you have cash flowing, it’s easy to get lending. We are starting to see some signs where the [commercial mortgage-backed securities] are starting to show some life. It will be interesting to see how many bigger issuances we have in 2013, but my guess is they’ll start off small and we’ll start seeing more toward the end of the year.

Can you discuss your opinion on the New York market, where it stands and where you see it going over the next 12 months?

I’m more macro in my lens rather than into a particular market, but there are some instances where quality properties are demonstrating cap rates that were pretty close to their highs in 2007. It seems to me that there are a number of new products coming online, such as hotels, which I don’t think is going to cause any significant dilution of other assets which are in place.

I actually think New York—with the existence of such offshore interest, and I think a longer-term bullish view on this marketplace—I think you’re going to see plenty of capital flows here, but I think there’s going to be an interesting dynamic where cap rates get to historic lows and people start saying, ‘Well, you know, are we still that bullish on New York?’ And I think the answer is probably yes.

You mentioned that you work with sovereign wealth funds. Do you foresee there being a continued interest for those funds in the U.S. market?

Yeah, I do. I guess the question is whether they’re going to go direct or whether they are going to work themselves through other intermediaries. In some instances, there’s still a huge volume of maturities that’s going to come up on debt for assets that were financed during the last cycle—2005, 2007.

My guess is, opportunistically, sovereign wealth funds will want to get involved with the recapitalization process. I think they’ll do it directly when it’s something like a single building in New York City. But when they might be looking to get more diversification, they’ll come into sidecar vehicles or into some of the private equity funds, when they go through their next round of fund-raising.

If you’re looking at a trophy property in a gateway city, that will be very appealing to the sovereign wealth funds. They see that as a longer-term play, and you can kind of take that and swallow it easy as a sovereign wealth fund. If you’re looking at a more complex play—whether it’s a multiple pool of assets over multiple geographies with an operating platform or whether its single family, whatever the case may be—as the underlying pool of assets becomes more diverse, I think that’s when the funds will be trying to leverage intermediaries to manage the risk and manage the assets.

With interest rates where they are, is there any risk of a bubble in the market? Is that something on your mind?

It’s not on my mind, but it’s always a risk.

So, is it something the industry should keep an eye on?

No, I happen to think rates are going to be pretty low for the next three to five years, and that works pretty well into a refinancing cycle.

Now, I could be wrong but I don’t see such a robust rate of activity occurring in different markets in the U.S. that would cause me concern. I think it’s a lot more controlled rate of activity. I think people realize the activity we saw in 2004-2007 was kind of abnormal. So, when you start thinking about what is a normalized level of activity, you’ve got to look back to some other periods of time immediately preceding that where there were more healthy lending habits. What will happen if the credit markets open up too aggressively? There is some concern around that dynamic.

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