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AMB chair: Surplus of organized capital 'ready to pounce' on assets

The industrial property market is improving, there are still too many brokers, and the demand for space will outpace demand in emerging markets such as China and Brazil.

These were a few of the pronouncements of Hamid Moghadam, AMB Property Corp. chairman of the board during a University of San Diego's Burnham-Moores Center for Real Estate session on the school's campus Tuesday. Dennis Cruzan, chairman, principal and co-founder of Cruzan|Monroe, moderated the program.

The recession may have been longer this time around than in the 1990s, but Moghadam said the fact that there wasn't a lot of overbuilding for the most part is a saving grace this time around.

"And in the 1990s we didn't have the volume of organized capital we have today. There is a lot of organized capital that is ready to pounce on these assets," Moghadam said.

When asked by Cruzan what role private equity is playing in investment today, Moghadam said his firm has invested some $7 billion in private equity monies in its properties along with its publicly-traded funds. He also expects to see an acceleration in the number of initial public offerings next year as a lot of capital chases a limited universe of deals.

In order to remain competitive, AMB has found it necessary to invest in some 14 countries around the world. Moghadam said and David Twist, AMB Property vice president of research, wrote that they are particularly excited about the prospects for China and Brazil.

"We expect demand for new Class A product to easily outstrip supply in the next few years, specifically in emerging markets such as China and Brazil, and more selectively in supply-constrained developed markets with pent-up demand for modern product," Twist writes.

Twist said in November 2009 his firm correctly predicted that the low levels of industrial construction globally were unsustainable. "As expected, the recovery has led to an increase in global inventories, sparking positive net absorption for the first time in three years."

Not everything was predicted correctly.

"While the recovery and the shift to positive absorption have been directionally consistent with our forecast, the bottom of the cycle extended longer than we originally anticipated," Twist added. "The pace of the recovery moderated in the late spring due to a dip in confidence and slight softening of fundamentals prompted by economic uncertainty in Europe and the United States."

AMB projects that as markets and confidence appear to have stabilized and the economic recovery gains momentum, "we expect net absorption to accelerate in the fourth quarter and into 2011."

Nationally, Moghadam said the industrial vacancy that had peaked at about 13.5 percent in mid-2009, has returned to about 8.5 percent since. Moghadam said the rate had been about 8 percent in September 2008.

While some markets such as Otay Mesa -- which has roughly 3.5 million square feet of vacant industrial space -- are overbuilt, most markets in the country and around the world appear to be tightening up.

"Consensus production and trade forecasts imply 2011 net absorption of more than 165 million square feet in the U.S. and 400 million square feet globally," AMB reports. "The global forecast is driven by rapid growth in emerging markets, as production and trade numbers in these areas indicate that much higher levels of absorption are warranted."

There may not be enough industrial space in many markets, but Moghadam said there are still too many commercial brokers around who don't have enough work to keep them busy.

"The business doesn't need all the people who are in it," Moghadam said.

Although there are still many problems to be overcome, Moghadam said he is bullish on investing in industrial real estate.

"This is a great time. This is the most excited I have been since the late 1990s."

As of Sept. 30, AMB owned, or had investments in, on a consolidated basis or through unconsolidated joint ventures, properties and development projects totaling approximately 158.4 million square feet in 49 markets within 15 countries. AMB invests in industrial properties near airports, seaports and well-connected ground transportation networks.

For the nine months ended Sept. 30, AMB posted $22.28 million in net income on $468.98 million in revenues -- compared to $76.46 million in net income on $153.56 million in revenues for the like period a year earlier.

AMB's stock closed at $29.19 Tuesday -- down 29 cents on the day. The stock has ranged from $21.80 to $30.73 during the past 52 weeks.

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