Interviews Philip Rosen – Sr. Partner, law firm of Weil, Gotshal & Manges LLP

0:00 Speaker 1 Good morning. This is Michael Stoller for the Stolar Real Estate Report on the Cats Roundtable this morning. I have j. Phillip Rosen, who is the longtime head of real estate, Gaming, Israel and Hospitality at the international law firm of Wild, Gotcha and Managers. Phil has seen everything over the last forty years and he’s the leading expert on restructuring, bankruptcies

0:25 and a variety thing as well as running the Israeli practice for the firm. So Philip, thanks for coming here. What’s up with the state of the market. How do you look at it?

0:34 Speaker 2 Thank you? Michael. First of all, I’m honored to be here on your show again and I appreciate it. Also, you didn’t mention that I’m co professor with Michael Stoller of a real estate course at Yeshiva University Sisim School of Business and every Friday at ten am, I get to be with Michael Stoller interviewing a mogul of real

0:59 life state.

1:00 Speaker 3 So a lot of fun, right, the Titans in real estate. It’s a dynamic course, exactly, it’s a great course. So, Titan of real Estate, how’s the market today?

1:11 Speaker 2 So the market is a bunch of distinct markets, it’s very hard to say real estate is good, bad, and different. You can’t say that because there are ten different product lines, there’s one hundred different economic arenas. So you could say multifamily, real estate, pre market, upper east side, upper west side, Manhattan, it’s good, it’s good, okay, And then you could say

1:44 that hospitality, upper end hospitality in Manhattan sucks. And then you could go into different other cities and go through the different varieties of real estate. So it’s very hard to give one answer.

2:02 Speaker 1 How do you look at the world today as opposed to the past recessions or the past conditions that took place. How do you compare it?

2:11 Speaker 2 So there’s a bunch of differences. But I would say that this is one that has some parts of the real estate world doing very, very very well and other parts of the real estate world doing horribly, and there’s anything in between and that you didn’t have in other cycles and other cycles when it was caused by purely

2:35 financial reasons that I’ve taken interest rates down, taking interest rates whatever it was, the market went as a whole. I mean, it might have taken longer in certain cities, It might have taken longer for certain products, but it was a hole, and this one there’s no hole. There’s no absolute. There’s a bunch of differences in terms of product,

3:03 in terms of how expensive it is, a lot of differences, And mainly the variety is in the locale. New York is different than Chicago and Los Angeles and Miami. And I think when you talk about real estate, you need to be very specific and go down to the specific geographic area and the type of product, and in some

3:36 cases the sub geographic areas. So in Miami, Belle Harbor may be a lot different than Miami Beach, and Brickle Avenue may be different than the rest of Miami Beach. So you really have to get very very specific in order to give a real gauge of where the market is.

3:57 Speaker 1 So the question is who who are the investors who are looking to seize the market? As I say in my acronym about salt.

4:06 Speaker 2 So the investors today there’s a variety, but the main ones that I focus on are the longtime, very very well healed investors, companies and families that are willing to expose themselves to the market today and look at it as a real opportunity. I always say that the best opportunity real estate. Actually, I’ll give you a quote the

4:37 last downturn, actually the two thousand and eight downturn where Lehman Brothers went under and triggered a lot of bad results. The day Lehman went under and my firm filed the bankruptcy. So I was watching very carefully. I was up in Canada.

4:59 I was visiting clients in Canada, and I remember very very well that I came from a bunch of meetings. I went to the Brookfield offices, and as I’m about to get in the elevator to go up, one of the heads of Brookfield came over to me and said, Hey, Phil, how you doing. I said, I’m not doing great. I

5:18 don’t think anybody’s doing great. I said, I just came from a meeting where absolutely nobody paid attention to me because they were looking at their screens to see where their portfolio was at. I said, so this trip may be a waste, but I’m coming up to your offices anyway.

5:34 He pulls me inside and he says, Phil, today is the best day in the history of man for my company. Today we will make investments that will in ten years from now push our portfolio from two billion dollars under management to maybe twenty, maybe forty, maybe one hundred, maybe three hundred. It actually pushed it up to seven hundred

6:00 ninety billion dollars under management from that day going forward. So having confidence in a market that’s on a tailspin is a pretty impressive thing. It requires real to use the expression balls, but it requires people that are very very smart, and a lot of the investors today are very very smart.

6:23 Speaker 1 One of the areas that you also specialize is the casino and the gaming business. What’s your thoughts about that, especially with the possibility of three new casinos opening up in New York.

6:34 Speaker 2 So the casinos in New York will change the nature of gaming in this area. I think the people to be harmed by the casinos in New York are the downtrodden, meaning Atlantic City. I think when I represented the Trump Casinos and another group of casinos over the years, I always predicted that it would be twenty or thirty years

6:58 until Atlantic City becomes a good area for investment. I’m not even sure that twenty to thirty years is accurate. If gaming comes to New York City, I think it may be even longer. A period of time so they’ll be hurt. The Indian casinos in Connecticut will be hurt, but not as much as Atlantic City.

7:21 Speaker 1 With regard to these signature bank loans, what’s your thoughts about that?

7:24 Speaker 2 So I don’t have very much to do with those loans in that portfolio. I was very interested to hear other speakers at other people I know talk about the portfolio, but I don’t have very much to do with it.

7:38 Speaker 1 Michael, what’s your thoughts about private equity providing debt and equity more of it today than before.

7:44 Speaker 2 So it’s fascinating that the banks have created a void. The banks are very focused on their own portfolios and the issues they have with their own loans, especially a lot of them I’m coming to next year, so they’re not lending real money, and there’s a giant void, and you’ve got I think it was six to seven billion

8:11 dollars of mortgage backed securities coming due next year and the year after, and in my mind, if the banks can’t help finance those loans, you’ve got a real void and people have to step in. I think the people that are stepping in there some very very smart direct lenders, meaning private equity firms, Hedge funds and other direct lenders,

8:36 and I think they’re they’re doing They’re taking advantage of a great opportunity.

8:43 Speaker 1 How do you what’s your thoughts about the office market.

8:46 Speaker 2 I think, again, the office market is there’s a lot of different markets. I think in some cities the office market is okay, and most of the other cities offers market is less than okay.

9:02 Speaker 1 And within the big Apple, what’s your thought of it.

9:05 Speaker 2 I think the prime properties, the A properties are going to do well. They’ll you know, they’ll have a new mix of tenants in some cases. In other cases they’ll sign leases that are lower rents than they did in the past. But I think they’ll do okay. The real problem is the B and C markets in New York,

9:26 and I think those are the ones that have real, real distress.

9:30 Speaker 1 And you your thoughts about the conversion of these properties.

9:33 Speaker 2 I’m not a big fan of conversion because of the enormous amount of money that you have to put into the infrastructure in order to make conversions successful. And it’s not just the building infrastructure itself. It’s that plus it’s the infrastructure of the systems around the property itself. So for example, you need to fix the sewer system, the

9:59 water system, HVAC, internet access, all sorts of things have to be a lot of money has to be spent to fix those to make them viable, and that’s expensive, and it adds a tremendous amount of cost to buildings that are ready expensive.

10:21 Speaker 1 I’d really like to thank you for your insight on the market, my friend J Philip Brosen, and I’ll see you next week.

10:27 Speaker 2 I’ll see you next week.