Friday Letter Rime of the Ancient Mariner

Mesirow Financial's chief economist Diane Swonk this week drew a parallel between the US market and two lines from Samuel Taylor Coleridge’s longest poem to describe how there is much capital, but no obvious place to invest in these uncertain times. 

 Delegates at the PERE Forum in New York this week were treated to a little bit of poetry. Borrowing two lines from The Rime of the Ancient Mariner, Mesirow Financial's chief economist Diane Swonk quoted: “Water, water everywhere / Nor any drop to drink” to describe the current state of real estate investment. Capital everywhere, nor any spot to invest.

Perhaps that is a bit of an exaggeration given that firms are finding deals, but it did reflect a degree of frustration in certain aspects of private equity real estate investing.

 In fact, frustration with Washington in particular was a recurring theme throughout the Forum. In an interview conducted on the first day of the event, when asked what keeps him up at night, TIAA-CREF's head of global real estate Thomas Garbutt said: “Our government in Washington.” He went on to elaborate that it is “in a self-destructive mode that ripples through everything”.

Indeed, the growing Occupy Wall Street movement and the impending presidential election also are adding to both frustration and uncertainty, causing the industry – and virtually all industries, in fact – to develop a cautious ‘wait and see’ attitude.

It's not just governmental uncertainty that's affecting the private equity space. In his keynote presentation opening the second day of the Forum, Thomas Murphy, former mayor of Pittsburgh and current senior resident fellow of the Urban Land Institute, pointed out that we're “moving toward a different set of requirements” for being a competitive 21st century US city. “We’re at a point where the rules are changing,” he added.

The rules are indeed changing. Murphy's presentation pointed out that, with 83 million, the 18 to 32 age group known as “Generation Y” is the largest generation in US history, and their choices will have a huge impact on investments.

Still, the feelings of some frustration and uncertainty do not really knock-out private equity real estate folk.

Matt Khourie, global president of CBRE Global Investors, struck a bullish note during his keynote interview on the firm's forthcoming business plan: “In 2012, we're going to be both buyers and sellers: sellers of core and buyers of value-added investments.”

William Lindsay, founding partner of Los Angeles-based investment management firm PCCP, stated something similar on another panel. “We're selling everything that looks, sounds or smells like core,” he said.

A good many executives were in fact excited to see what 2012 has in store for them. After all, just because 2012 won't resemble 2011 doesn't necessarily mean that will be a bad thing. “We have the opportunity to do things right,” summed up Swonk. “There are a lot of icebergs, but we can avoid them.”

Delegates are certainly hoping to avoid icebergs. As scholars of Samuel Taylor Coleridge will know, the poem ends with the Mariner, driven by guilt, being forced to wander the earth recounting his story to anyone that will listen in order to teach them a lesson. No one wants to end up like that.