Real estate analyst sees 'lava flow' of area activity

The Greater Richmond Convention Center was put to good use last week as Virginia Commonwealth University held the 14th annual VCU Real Estate Trends Conference.

About 625 registrants filled Ballrooms 21B and 21C of the new convention center, and the program went off in solid form. The first speaker, Susan Hudson-Wilson, the founder and CEO of Property & Portfolio Research Inc. based in Boston, set the tone.

Hudson-Wilson gave a rousing presentation where she told the audience that rather than have a question and answer period after her speech, that "we could battle" when she was done.

PPR, which recently formed a strategic alliance with the Giliberto-Levy Commercial Mortgage Performance Index (a product co-produced by John B. Levy & Company Inc.), advises large institutional real estate owners on trends that will affect real estate. Among the highlights of her presentation was the prediction that a "lava flow" of capital will continue to come into real estate, which was differentiated from a flood of capital in that it will flow in slowly and stay longer.

Nestled in an interesting presentation was the comment that the nation's largest mutual-fund company, Fidelity Investments, is soon announcing a new real estate fund that would allow "common folks" to invest in institutional real estate.

Apparently, the fund has already been seeded with $2 billion of pre-announcement commitments, and the chairman of Fidelity, Ned Johnson, is investing more than $100 million personally. More regional/localized presentations included speeches by James E. Ukrop, chairman of Ukrop's Super Markets Inc. and First Market Bank; Robert Gray, president of Richmond consulting firm Robert Gray & Co.; and several local leasing and investment sales brokers.

Ukrop spoke about the convenience of being downtown as opposed to living in the suburbs. Dramatizing his point, he indicated that in 100 years, historians will look back on the suburban growth of the past 50 years and ask "what were they thinking?" Overall, the tone was that the market has been going through a very tough patch, along with the rest of the country, but that things are beginning to look up as Richmond adds jobs.

Like the national trend, retail was the brightest spot in the local presentations. However, Scott Durham, a principal at CB Richard Ellis, showed a slide that pegged the Richmond area's suburban vacancy at 8.4 percent, a figure that ranks it at the top in the country.

Perhaps another bright spot is that interest rates are low and seem to be staying there. Fiveand 10-year mortgage rates now range from 4.75 percent to 5.50 percent, according to the Barron's/John B. Levy & Co. National Mortgage Survey. This has allowed investors to drive up prices without giving away leveraged return.

Put another way, an apartment investor that leverages 80 percent of a property purchase at 5.25 percent can afford to pay more for a property than if interest rates were 7.25 percent and still maintain the same return on the 20 percent of equity he or she is investing.

One locally prominent name is making a statement that now is a good time to be buying apartments. John McCann, the former chairman and chief executive officer of United Dominion Realty Trust Inc. is joining with two former UDR employees to form McCann Realty Partners, LLC, an apartment investment company that will focus on apartment properties in the Southeast. McCann, along with partners Brand Inlow and Fleet Wallace, will seek to co-invest with institutional partners on C+ to A- properties.

Andrew Little is an investment banker with John B. Levy & Co. He can be reached at alittle@jblevyco.com

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