Published May/June 2012
Robert O’Brien leads Deloitte’s U.S. Real Estate Practice and has more than 25 years of public accounting and transaction experience in the real estate and hospitality industries. He has an MBA in finance from Northwestern University’s Kellogg Graduate School of Management.
What are the top three trends impacting the commercial real estate market at this point in 2012?
I think the top one would be macroeconomic trends. We’ve seen nice job growth over the past few months, but unemployment is still around 8.5 percent. We’ve seen consumer spending increase, but consumer incomes have stagnated. How sustainable is that? We continue to have the sovereign debt crisis in Europe, and oil prices are way up. This economic recovery is still very fragile.
I think the second major one would be the CMBS market. We are seeing the CMBS market reemerge and that’s a great thing for real estate. With the amount of debt coming through in the next few years, we need a properly functioning CMBS market.
Then, finally, the third issue would be the amount of capital the REITs and private equity players have to deploy. They’ve been very patient and disciplined at deploying that capital, and that’s great to say in our industry. We expect a lot of that capital to be redeployed over the next several years—recapitalizing, doing acquisitions—particularly around all this debt coming due.
Picking up on that last point, listed REITs have been very active in raising debt and equity capital, but that hasn’t really transitioned to acquisitions yet. Do you think that we’ll see more M&A activity pick up in 2012?
I think the M&A activity we have seen has been very strategic. We’ve seen it, for example, in industrial REITs and health care REITs, where there’s a strategic purpose served in those M&A transactions. We haven’t seen it in the office, retail and hotel REITs. Perhaps that’s a function of the macroeconomic uncertainty we were just talking about.
What is the current prognosis for the convergence of global financial standards?
It’s certainly more uncertain than I would have said three or four years ago. What we’re seeing is that the Securities and Exchange Commission (SEC) is continuing to look at the path it would like it to take.
We are seeing some convergence. I think the leasing standard, which has gotten a great deal of attention among the NAREIT constituency, is one indication of the convergence. I think the investment property fair value reporting proposals is another great example of that. But, then again, the timeline is not clear right now in terms of exactly how it’s going to play out.
What would you say is the key issue driving the need for advanced business analytics in the commercial real estate industry?
If I were to frame it from a real estate standpoint, I think that real estate entities can really get to know their tenants, their ultimate customers, better. There’s data out there today to really allow you to do that.
Let’s use retail REITs as an example. Do you really understand the traffic patterns and how individual shoppers are spending their time in your mall and your shopping centers? From an office standpoint, do you really understand how your tenant’s employees are using your office space? When do they come to the office, and how often do they come in and out of the office on any given day?
There’s a tremendous volume of data available today. There’s great velocity of the data and there are great analytical tools to capture that data and really drive business decisions, whether pricing, cost management or competitive intelligence. Data analytics is becoming a real powerful tool in real estate and elsewhere.