The 2016 RE/MAX Commercial World Symposium featured a fascinating presentation about global buyers, millennials and the question of a bubble
By Rebecca L. Olgeirson
“Is this 2016 or 2006?” asked Brian D. Bailey, senior technical expert at the Federal Reserve Bank of Atlanta. “Has anybody in this room heard that question?”
A lot of heads nodded in response to the question, posed at the 2016 RE/MAX Commercial World Symposium in Denver.
Bailey brought his financial expertise and informed perspective on national commercial real estate to a group of nearly 100 RE/MAX Commercial Practitioners. During his 90-minute presentation, he relayed key insights on many topics, including the impact of foreign investment in commercial real estate, challenges for the brick-and-mortar retail shops and a critical look at Class A apartment buildings.
Bailey said the $100 billion in foreign investment in U.S. commercial real estate as of September is the highest total to date, “with investment coming from all four corners of the earth.” Bailey added that 45 percent of all year-to-date foreign purchases were in the office sector.
Internet shopping continues to impact brick-and-mortar shops. And while many brokers fret the impact of Amazon’s proposed drone delivery, Bailey focused on another high-tech disruptor: driverless cars. “Groceries are the final commodity to be truly impacted by online shopping,” explained Bailey. “But imagine going online with your grocery list, then Walmart packs your groceries in a driverless car, which then shows up at your house.” Grocery-anchored retail strips could certainly take a blow in this scenario, he cautioned.
Class A Apartments
Given the apartment development of the past few years, Bailey said he’s not as optimistic about luxury apartments now. Rather, he sees promise in the Class B and Class C projects. “We know some millennials still living in Mom and Dad’s basement will come into the market,” he says. “And I think we’re kind of thin on those B and C apartments.”
Bailey emphasized that his comments are his own and don’t necessarily reflect the Fed. That said, ultimately the combination of many factors – including foreign investment, decreased dependence on the commercial mortgage-backed security market and increased banking oversight – makes for a far stronger financial footing than what was in place in 2006.
We know some millennials still living in Mom and Dad’s basement will come into the market, and I think we’re kind of thin on those B and C apartments.Brian D. Bailey
The RE/MAX Commercial Practitioners in attendance peppered the presentation with thoughtful questions, capping off the session with a big one: Are we in a bubble?
“Well, how do you define a bubble?” asked Bailey with a chuckle. “Unfortunately, you really don’t know you’re in a bubble until it pops. But it’s my belief that we’re not in a bubble now, and we’re taking steps not to get into one in the future.”
Additional speakers at the 2016 Commercial World Symposium included Rod Santomassimo, Founder and President of Massimo Group (“Teams Built to Dominate,” “Maximize Your Income”), and Jeff Engelstad, Professor of the Practice at the Burns School of Real Estate and Construction Management, University of Denver (“Splitting Profits in Commercial Real Estate,” “Using Excel to Build a 5 Year DCF Model”).