Editor's Note: This is a summary of an HBS Business Summit presentation. View a full summary and video of the event on the HBS Centennial Web site linked below.
|Date of Event:||October 14, 2008|
|Moderator:||Howard H. Stevenson, HBS Faculty|
|Speakers:||Michael Fascitelli, President, Vornado Realty Trust|
Nori Gerardo, Partner, Chief Strategist, Private Real Estate Investment Management Partners Group
Scott Malkin, Chairman, Value Retail PLC
Bill Poorvu, MBA Class of 1961 Adjunct Professor in Entrepreneurship, Emeritus, HBS
Arthur Segel, Poorvu Family Professor of Management Practice, HBS
What are the next steps in real estate? This panel discussed the global real estate crisis, the future of securitization, and predictions for the future of the U.S. real estate market.
After years of abundant capital and rising asset prices, the current financial crisis has hit the real estate sector very hard. The crisis may have started with residential real estate but it is also affecting commercial real estate. Asset prices have fallen and are expect to decline further; there are likely to be massive defaults; and debt is virtually nonexistent, according to panelists.
And the situation is likely to get worse before it gets better. The good news is that because of sharply falling asset prices, for those with cash, the next 12 to 24 months are likely to present very attractive buying opportunities.
Key concepts include:
- The financing of real estate is central to the global financial crisis.
- In the United States, the real estate market faces reduced cash flows and significant re-pricing.
- The housing market must bottom out before a recovery in the real estate sector can begin.
- Expiring loans will have to be dealt with.
- The real estate crisis is a global problem.
- Securitization isn't evil and it isn't dead.
- Despite the current challenges in the real estate sector, there will be tremendous buying opportunities
- The economy will experience deflation first, followed by inflation.