By Arleen Jacoubis | Pensions & Investments
Technology and innovations are set to disrupt the real estate money management business, with managers bracing for change in everything from parking lots to hotels, said speakers at IMN's Winter Forum on Real Estate Opportunity & Private Fund Investing in Laguna Beach, Calif.
During a Jan. 21 panel titled, “Large Fund Plenary” moderated by Alvin Katz, partner at law firm Katten Muchin Rosenman, the panelists agreed that when the technology for the self-driving car is perfected, along with the growth of car services such as Uber, that could change parking lot investments and the need for parking in buildings.
“Technology has had a significant impact as long as I've been in the business,” said Emmitt Smith, chairman and co-founder of E. Smith Realty Partners and former NFL Hall of Famer who has been in the real estate business for 11 years. Mr. Smith was speaking on a panel about innovation.
Tenants in buildings are beginning to ask for the same technologies they have in their homes, said Christopher Rising, president and chief operating officer of Rising Realty Partners, speaking on the panel with Mr. Smith.
“Technology and innovation is hitting real estate as never before,” Mr. Rising said.
Mr. Rising said when he drives home, he can unlock the doors and turn on the lights from his phone, and tenants want the same sort of applications in their offices.
Many of these changes are being pushed by the millennial generation entering the workforce.
Shopping to entertainment
Businesses that are trying to recruit millennials need to provide the right office space or they will not attract the right candidates, he said.
Innovations also are changing the retail and multifamily sectors, noted Howard Barash, principal of accounting and consulting firm CohnReznick Advisory Group.
Shopping malls now need to morph into entertainment centers to provide incentives for consumers who are increasingly doing most of their shopping online, Mr. Barash said.
In the hotel sector, real estate managers are taking steps to combat the erosion of their businesses as firms like Airbnb grow from appealing to the very young to people of all ages and socioeconomic groups.
Hotel markets including New York and Los Angeles are “feeling a hit in a big way,” said Philip Cyburt, CEO of Laurus Corp., a real estate investment and development firm. Mr. Cyburt spoke on a panel about the hotel sector.
“Airbnb is really major for the asset class and its impact is becoming more and more robust,” he said.
Many people in the hospitality business in New York are worried about it, he said.
“Hotels everywhere should be worried about it,” said Brian De Lowe, principal at real estate investment manager Kor Group speaking on the same panel.
In the beginning, Airbnb appealed to young people, which affected the more economy-rate hotels. “Now everyone is at risk,” said Mr. De Lowe, who invests in boutique hotels.
To combat the impact of Airbnb, Kor Group's hotels strive to offer things such as entertainment and cultural activities that travelers won't get by renting someone's apartment, Mr. De Lowe said.
Earlier in the conference, which ran Jan. 21-23, speakers addressed the challenge of fundraising for all but the very largest real estate managers, despite a flood of capital seeking to invest in commercial real estate.
Sandy Presant, chairman, real estate fund practice group at law firm Greenberg Traurig, in his introduction to a panel he moderated on fund structuring and market trends compared managers' confidence in closing a commingled fund this year to believing in Santa Claus.
“Do you believe in Santa Claus and raising a discretionary fund or do you do something else” such as a joint venture with institutional investors, Mr. Presant asked.
Even managers that did raise capital in 2015 bemoaned the tough fundraising environment in which it can take 18 months to two years to raise a real estate fund.
In 2015, real estate manager Colony Capital raised about $2 billion, said Paul Fuhrman, executive director and head of U.S. acquisitions, speaking on a different panel. His panel was about the state of the industry and a fund update for 2016.
Foreign investors were freer with their capital commitments, Mr. Fuhrman said. However, “in 2015, domestic appetite was cautious. … Re-ups are not coming automatically” from existing investors, he added.
“We're not Blackstone,” he added. (Blackstone Group raised the largest real estate fund in 2015, the $15.8 billion Blackstone Real Estate Partners VII.)
“I think it will be a bit of a tough capital-raising (market),” Mr. Fuhrman said.
Meanwhile, Mark Jacobs, managing director at alternative investment firm Oaktree Capital Management(OAK), said he sees a lot of investment opportunity in the massive amount of real estate debt coming due in 2016 and 2017.
The amount of debt set to expire in the next two years is much more than came due in 2015 in a time when the real estate market is “much choppier” than it was last year, Mr. Jacobs said.