Former Florida Governor Jeb Bush is convinced that the absence of an entity like the Resolution Trust Corp. is hindering a recovery in U.S. real estate markets. Bush was one of many speakers at the first annual Innovative Real Estate Strategies conference in Palm Beach Gardens, Fla. The conference, sponsored by Financial Advisor and Private Wealth magazines as well as Robert A. Stanger & Co. LLC, drew about 250 advisors and real estate professionals.

The RTC was a market-based solution created in 1990 to get bad assets off the balance sheets of banks during the last major U.S. real estate downturn. Bush noted that in Florida in particular, bad real estate loans are resolved through the courts, not the markets or arbitration. Given that Florida was the center of the real estate bubble, a huge backlog of foreclosure cases there is straining its court system.

But conference panelists also noted that amid the aftershocks of the real estate bubble crash around the world, opportunities have arisen in commercial properties in the form of distressed properties, foreclosures and short sales. And global capital has shifted to seize these opportunities. Middle Eastern investors, for instance, have begun diversifying out of their own increasingly unstable region to find properties in places like London.

Glenn Mueller, professor at the Franklin L. Burns School of Real Estate and Construction Management at the University of Denver, told attendees that now is an excellent time to consider investing in commercial real estate. He also urged advisors to counsel clients not to view their homes as investments. Individuals should think of their home as a use asset like a car," Mueller said.

According to Marc Halle, senior portfolio manager and global head of Prudential Real Estate Investors, China and certain other emerging markets have recovered completely and look poised to grow. "China is a very good allocator of capital," Halle told attendees. "The U.S. market will pick up in two or three years."

In core U.S. markets, where institutional investors were withdrawing nearly $1 billion in capital a quarter six months ago, they are now investing about $1 billion a quarter to position themselves for an upturn, Halle said.

The absence of virtually any new construction over the last three years and the lack of much building being planned for the next few years should give commercial real estate owners lots of pricing power and the ability to raise rents in many markets, according to Mark Earley, president of Hines Real Estate Investments. In some markets like New York, Washington, D.C., Chicago and especially San Francisco, Earley is not seeing a lot of depressed prices, and in some cases, prices have returned to or exceeded pre-crisis levels.

The widespread popular perception that real estate will never recover amused Brian M. Conlon, president of Inland Real Estate Investment Corp. In the late 1980s, people said there was so much excess supply of real estate in Dallas it would never be absorbed in our lifetime. In actuality, it took less than a decade.

At the same time, changes in the players in real estate finance are likely to produce continuing dislocations going forward. "All the money that went into the CMBS (collateralized mortgage-backed securities) market needs a new home," Halle said.
And if a quarter trillion in debt can't be refinanced, some real estate properties could head south in value. "Banks are not good stewards of capital in real estate," Halle noted.

Despite myriad dislocations, some experts saw the chance to capitalize on structural anomalies in the business. Dan Wildermuth, CEO of Kalos Financial, noted that many non-traded REITs are approaching the final phase of capital raising. "You can see what's in there. You can see what cap rates are," Wildermuth continued. "They will revalue in 18 months and clients like revaluations."

Wildermuth added that some non-traded REITs that exist over 8- to 12-year time horizons-when they either liquidate or go public or find another exit strategy-may have much shorter life spans this time around. "That's very unique," he said.
In a wide-ranging talk on a number of issues, Jeb Bush told attendees that an immigration policy consistent with America's heritage and highest ideals could dramatically spur economic growth and solve many of our problems.

"A robust immigration policy" would also solve the nation's problems arising from an excess supply of real estate, Bush remarked. "We need hard-working people with aspirations" to participate in the American dream.

"This proves I am not running for anything," Bush quipped, acknowledging that his views on immigration were out of step with current mainstream thinking in the Republican Party.  "I get to say what I think since I'm not running."

Despite the fact that his older brother, George W. Bush, left office in 2009 with near-record-low approval ratings, many Republicans have mentioned Jeb Bush as a possible presidential candidate in 2012 since they view the current field as sub-optimal. But Jeb Bush clearly seems to be enjoying life in the private sector and gets to choose those public issues he wants to weigh in on. Constantly peppered with questions about a possible candidacy, he remarked at one point that it simply wasn't "his time."

"If we can secure the borders," most Americans would support a more enlightened immigration policy, he contended. "A great nation should be able to secure its borders" and have an e-verify system.

Increasing the number of high-achieving immigrants could create a burst of economic activity that would spur growth and would "benefit all of us." Bush told attendees that economic growth was the best solution to the surfeit of problems afflicting the nation. He cited the power of compounding to prove his point. If the U.S. can lift its growth rate over the next decade from 2% to 4%, "the difference is the size of Germany."

Another keynote speaker, financial commentator and author Nick Murray, voiced his concerns about the baby boom generation, many of whom he believes will run out of money in retirement. The average couple, he noted, is going into retirement today at 62 and one them is likely to live until 92.

"No one can invest successfully for a retirement they can't imagine," Murray remarked, adding that real estate is a complement to and not correlated with equities.

Mueller noted that all the studies he's ever seen show real estate to be a good hedge against inflation. He predicted most major real estate markets would see a turnaround in the next two years. The new supply of "all major property types is growing at the slowest rate in 40 years," Mueller noted.