Real estate deals: catching a falling knife
Real estate is showing some early signs of a revival as an attractive investment destination compared to other opportunities like corporate debt, but the equity and debt markets have to open their wallets with more confidence to resume a normal flow of deals.
That was one notable assessment by panelists at the fall conference of the Samuel Zell and Robert Lurie Real Estate Center held at Wharton recently. They also offered insights on lessons learned from the supervisory gaps that fueled the recent collapse of the financial markets and ways to fix them.
"Real estate looks like a better value proposition relative to other alternatives than it did six months ago," said David Twardock, president of Prudential Mortgage Capital, which manages the insurance group's real estate finances. He was speaking at a panel session titled, "Where Will the Capital Come from and How Will It Be Used" He said benchmark securities like single A-plus corporate debt today offer returns that are a third of what they were at the end of last year. "So, as an alternative, making loans to real estate looks like a better place to be than it has in a long time, relative to those benchmarks."
Twardock, however, lamented that while debt capital is available, equity investors are still holding back. That phenomenon is not helping the process of deleveraging, or reducing the share of debt in portfolios, that banks and other lenders must undergo before a more normal deal flow can resume, Twardock and other panelists said. "The difference is very few
