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May 07, 2012, 10.34 AM IST | Source: CNBC-TV18

Transparency in real estate biz key to sector rebound: C&W

In an exclusive interview with CNBC-TV18, Glenn Rufrano, President and CEO of Cushman & Wakefield, talks about how the industry has weathered rough waters. He talks about the real estate market across geographies.

Transparency in real estate biz key to sector rebound: C&W

Like any other emerging sector, the real estate industry has faced its own share of hurdles in the last couple of years. But after two brutal years, the markets have sprung back and Cushman & Wakefield, one of the world's largest privately held commercial real estate firms, has participated in the rebound.

In an exclusive interview with CNBC-TV18, Glenn Rufrano, President and CEO of Cushman & Wakefield, talks about how the industry has weathered rough waters. He talks about the real estate market across geographies.    

Below is an edited transcript of Rufrano's exclusive interview on CNBC-TV18. Also watch the attached videos.

Q: How brutal have the last two years been for you?

A: Not brutal. Living through 2007, 2008, 2009 was brutal. Living in real estate for 2010, 2011 and 2012 has been very reasonable, the markets have rebounded and Cushman & Wakefield has participated in the rebound. I feel very good about working with the firm for the last two years.

Q: Has the US commercial real estate bounced back? Is equity coming back into those markets?

A: The US real estate market is in a very good state right now. We were in a tough state in 2008-2009. It took the first half of 2010 before the community had enough understanding of the fundamentals to get the investment come back. It’s important we had business people making decisions to increase space needs. So, from the middle of 2010, we have seen a better and robust capital market.

In terms of capital plenty of debt, the market had debt that could be sourced from savings and loans. The CMBS market is back and certainly the banks. So, we feel like putting a bit of capital. The fundamentals are good, by fundamentals, I mean supply and demand. We have not built any space in the US for the last 5 years. Therefore, occupancies are getting better.

Q: Are they in pockets or across the country? What kind of geography spread are we seeing there?

A: There are pockets in better markets and less better markets. The coastal cities, by and large, are better than the interior of the US. But each of the coastal cities can have a different story. For instance, San Francisco is a very good market because of technology. Dallas and Houston Texas are booming markets because of energy. The North East is doing well. We understand that financials are doing little less well, but technology, media, healthcare are growing very rapidly in the North East. So, each section of our country may have a different driver, but by and large, it’s the coastal cities that are benefitting.

Q: There are no bubbles left to explore anywhere?

A: Not many bubbles. What is more difficult is the single-family housing in the US - that’s where we were oversupply. That’s different from commercial, but it’s getting better. Our housing market is gaining more traction in terms of new homes, absorption and the low interest rates have helped tremendously.

Q: Are commercial rates back at 2007 levels or are they just steady?

A: Cap rates depending on the property type are very close to 2007. For instance, in New York City, prime NYC office buildings are selling in the 4-5% cap rate. We have a hot market throughout the United States, which is multi-family residential. That’s the rental market, which is in the 4-5% cap rate again somewhere in 2007.

Q: There have been reports in the past of a lot of foreign money looking to invest in the real estate in the United States. Is it a good time to get into the United States, would you advise high networth individuals from India to buy real estate in the United States?

A: We would love all the capital we can get. Now we have had a number of sources of capital, sovereign funds, for instance, from around the world and other forms of capital. It can be high networth capital trying to understand those markets in the United States. But as of now, the dominant player has been the US investor. But I would expect to have more foreign investment over the next 24 months because they are now getting more comfortable with the market.

Q: Which cities in the US would you put money for commercial? Which area is as attractive as residential or which looks better?

A: The first question always is risk. If you are looking for core real estate, which we would say has the least risk, we would recommend the office market in the major cities like San Francisco, West Los Angeles, Houston, Dallas, New York, Boston, Chicago. These cities have very sound markets for office, very safe and core investment could go in there.

If we were looking across appropriate type, it would be multi-family because the highest growth rate potential is in multi-family. Many of the people in the single-family homes have moved out or have moved into multi-family and we have not seen the amount of supply necessary to take care of that demand.

Q: How is Europe looking? You have been bullish on Asia and Pacific in most of your interviews since 2010. How are those markets looking?

A: If you look at America, from Canada right down to South America, the US 2% GDP growth, Canada is 3%, perhaps Brazil at 5%. In this part of the world, if you leave Japan out, certainly your markets here at +-7 or +-8%, China in 9% range, the lowest by far is Europe. In terms of growth, the expectation is flat.

Though it's not only low GDP growth, it’s the Euro. So, they have a double issue - there is lack of growth and second is the form of currency, which is unstable. So those two problems are causing that part of the world to not grow as much, in the real estate.

Q: Two years ago, Asia-Pacific accounted for 8% of your revenues. Where does that stand now?

A: It's about 8%, it's growing in proportion to the country; a little higher but not enough to make a much difference.

Q: What would you like to see it at because it's an area for large growth but the markets aren’t mature? What stops you from growing faster in these areas?

A: First of all, we would like to see it double. We would love to see it at +/-15% because we believe that’s the proper diversification for Cushman & Wakefield. The difficulty in growth is getting the right people in place. We want to make sure that the company grows with the requisite people, the right people in the right spots. We are hiring a quite a bit.

We hired 1900 people at Cushman & Wakefield throughout 2011, everywhere, a third of that was in Asia. So with 8% of our revenue, a third of our hiring has been here. So we are attempting and we will grow this market and the only constraint we have is getting the right people in place.

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