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State of the Industry Q4 2019: Discussion with Peter Linneman

A conversation between Terry Montesi, CEO of Trademark, and Dr. Peter Linneman, Principal of Linneman Associates and Chief Economist of NAI Global.

December 2019

Terry: What trends are you seeing that would inform how real estate investors allocate their resources in the next five to seven years? What macro trends would impact real estate investors trying to be in multiple product types?

Peter: We’ve talked about it, but I hate office. If I didn’t say I hate office, I really hate office. I have a long history of being involved in office, and I really hate office. You can make money as a developer by adding value, but it’s hard to make money as the owner moving forward.

I was with Jon Gray at Blackstone the other day, and I think he said it really well: it eats up capital. You constantly have to add, and you always think you’re going to get ahead, but you never really do. By and large, his take is consistent with the experience I’ve had in office. Therefore, I just think what you’re starting to see, and it’s slowly happened over the last five to seven years, is office is losing its luster a little bit as an investment because people realize it doesn’t have cashflow at doable levels. The capital just chews you up. And to the extent that if I could avoid getting in office, I would. Now, if it’s the caboose rather than the train, that is fine. But I wouldn’t make it the engine to anything. I think on a down cycle it’ll get even more difficult, and it’ll be longer coming back on the up cycle. It just chews up too much capital. So, that’s first.

Second, as to the retail part, you want quality. You want locations that even if current trends in online were to continue, it’s such a fabulous location it’ll always be a great place for something. I don’t know what that something is going to be, I don’t know what new retail is going to look like, but it will be a great place. Now, you know from our past discussions that I’m one of the least bullish about…

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