Deloitte: Amid Downtrodden Economy, Commercial Real Estate Triumphs

New research from Deloitte shows that while commercial real-estate deal flow and liquidity are going strong, the longer-term impacts of legislative, regulatory, and accounting reform remains uncertain.

(August 19, 2011) — Research by Deloitte shows that commercial real estate deal flow and liquidity are going strong despite a sluggish economy.

The firm’s “Commercial Real Estate Outlook: Top Five Issues in 2011” report reveals that capital availability, price discovery, and improved fundamentals — driven by alternative financing sources and loan restructuring — are fueling commercial real estate (CRE) recovery.

“This is a positive year for commercial real estate so far. The uncertainty impacting the overall economy and other industries has had less of an effect on the real estate industry,” said Bob O’Brien, vice chairman and real estate sector leader at Deloitte. “It’s important to remember that commercial real estate was the first sector to be hit hard by the downturn so it is further along in rebounding than other businesses. At the same time, the wall of debt maturity that will come due between now and 2015 still may present short and longer term challenges for the remainder of this year and into 2012.”

The study found that the impact of financial regulations on commercial real estate is uncertain. The report stated: “Commercial real estate players are evaluating the potential impact of proposed legislation, regulation and accounting rules on the market while wrestling with uncertainty about how legislation such as the Dodd-Frank Act will be implemented. Other key issues include the Volker Rule, risk retention, lease accounting standards and covered bonds.”

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Furthermore, the study noted that global commercial real estate is likely to fuel investments, despite natural disasters in Japan and political turmoil in the Middle East.

In signs of a rebound of commercial real estate, the head of one of Canada’s most active global investors revealed earlier this year that it is eyeing US commercial property. David Denison, chief executive of the Canada Pension Plan Investment Board (CPPIB), which oversees about $140 billion in assets for Canada’s national pension plan, told the Wall Street Journal that he has witnessed a spike in the availability of commercial real estate in the US, and that he expected that trend to continue.

Largely due to a number of major recent purchases, the fund reported in February that its infrastructure holdings had ballooned over the previous nine months to become 6.8% of the fund’s total assets with a total value of $9.5 billion, up from 4.6% of assets worth $5.8 billion as of last March 31. Meanwhile, real estate assets had grown to $9.2-billion in value representing 6.6% of the fund’s holdings, an increase from $7 billion or 5.5% of total assets last year.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

TCW CEO Says Firing Gundlach Amounted to 'Cutting off Your Right Arm'

Trust Company of the West (TCW) CEO Marc Stern told a California Superior Court jury that he had no choice but to fire his chief investment officer, Jeffrey Gundlach, in December 2009.

(August 19, 2011) — The CEO of asset-management company Trust Company of the West (TCW) Mark Stern told a California Superior Court jury that he was forced to fire his his chief investment officer, Jeffrey Gundlach, in December 2009 over concerns that he was involved “in a secret plot” to steal clients and employees from the firm, Bloomberg reported.

While Stern said he did not wish to terminate Gundlach since he was such an important manager at the firm, managing 60% of its assets, he testified that he felt pressure to do so when he learned of the bond-fund star’s plans to leave TCW for Western Asset Management Co. or Pacific Investment Management Co.

Gundlach has been engaged in a lawsuit for allegedly stealing trade secrets from his former employer, TCW, and has testified that he did not need the company’s data to start his rival firm.

Gundlach, formerly the fixed-income guru at TCW, has been accused by the firm of stealing its system for evaluating bonds to set up a rival money-management business, DoubleLine Capital. However, under questioning by his own attorneys, he asserted that the TCW system for evaluating complex bonds used “the same data everyone else looked at,” the Los Angeles Times reported. Furthermore, he asserted that DoubleLine was built from scratch, with the computer software and data systems purchased from a third-party vendor.

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Gundlach formed DoubleLine just 10 days after being fired in December 2009, with most of his bond-team members leaving TCW to join him. DoubleLine has attracted about $14 billion from investors in 20 months. While TCW — which seeks $375 million in damages — claims Gundlach stole its trade secrets, including client portfolio data, to start DoubleLine, Gundlach has countersued TCW and its parent firm, French bank Societe Generale. Seeking about $500 million, he accused the firm of firing him to avoid paying him a hefty chunk of promised income, and said that concerns over being fired drove him to develop a backup plan to start his own money management firm.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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