I don’t have a tattoo. Always seemed a little too, well, permanent. But if I were to get one, I would probably imprint my skin with the first few bars of Chopin’s melodic masterpiece, Nocturne Op. 9 No. 2. Why? Because it is my favorite piece of piano music to play. And to this day, it has a surprisingly calming effect on my otherwise frenetic brain. Of course, I haven’t played the piano in eons. In fact, when I do sit at a set of keys, I can tinker out a few pop ballads (Journey, anyone?), some classic favorites, even a few things I’ll make up, but the grand, epic, fingers-flying concertos of Mozart and Beethoven are a thing of the past. Where practice makes perfect, a lack of practice barely gets you by. Most skills are like that. If you try to use it after years of neglect, you’re rusty. It’s inevitable. And even when you finally do get back into a rhythm, it can take a while to recoup all of the refinement and nuance that you once had.
The same is true in business. With the demise of the credit markets in late 2008, the industry came to a standstill. In 2009, development, dealmaking, expansion of any kind, was silent. Sure, there were roadblocks, but it seems we also quickly forgot how to make new construction work, or where to find financing for the deals we wanted. As an industry, we quickly fell out of practice. Fund managers scratched their heads in unison wondering what steps to take next, where to deploy capital, and so on.
Then, almost as suddenly, by mid-2010, everything changed once again. More and more projects broke ground (just look at the D.C. market alone). Buyers and sellers came out in droves—more than $38.9 billion worth of real estate traded hands in 2010, with more than $56.3 billion in deals expected this coming year. And some of those dealmakers were clearly rusty, unsure about when to close, where to strike, and how to avoid the missteps of the past. After nearly 24 months of inactivity, they were figuring out how to get back into the game—while already in the middle of it.
Now, here we are, heading into another post-Great Recession year, and industry executives once again sound optimistic that there will be more growth, more expansion. But they also say this year will be different. Why? Because instead of acting for the sake of acting and not missing the boat, multifamily owners hope to focus on refinement and polish. Honing their skills. Rethinking their strategy. Determining the right choices to make. After all, when you’re back in the saddle after some time off, that’s what you do.
Take Chicago-based Equity Residential. In 2010, Equity was the No. 1 buyer of apartment assets, gobbling up a sizeable $1.4 billion worth of properties in high-barrier coastal markets. Their goal was simple: Leverage their deep pockets to buy, buy, buy. Equity wasn’t particularly picky. It wanted quality, Class A product—and it found exactly that. But as the REIT looks ahead, its executive team is realizing that in 2011, the firm will need to be more selective about the types of assets it acquires. (For more on Equity’s 2011 strategy, see “The Big Kid on the Block” by Les Shaver on page 32.)
In fact, we’ve decided to dedicate this entire issue to dealmaking and the outlook for 2011. The coverage begins on page 31 and includes a wealth of data about the capital markets forecast for the year, a number of predictions from industry executives and market watchers, and hopefully an insight or two about how to navigate an increasingly competitive transactional marketplace.
Think of it as a refresher course on the art of the trade, circa 2011. And the only ink required will be the John Hancocks that seal the deals.