June 30, 2016
Interviewed by: Privcap
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Geopolitics and Real Estate Investing

Michael Fascitelli of Imperial Companies and Michael Ricciardi of Mercury Capital Advisors discuss politics, climate change and other risks.

Michael Fascitelli of Imperial Companies and Michael Ricciardi of Mercury Capital Advisors discuss politics, climate change and other risks.

Geopolitics and Real Estate investing
With Michael Fascitelli of Imperial Companies

Michael Ricciardi, Mercury Capital Advisors: Hi, I’m Michael Ricciardi. I’m managing partner and founder of Mercury Capital Advisors. I’m here today with Michael Fascitelli, founder and chief executive officer of the Imperial Companies. Welcome, Michael.

Michael Fascitelli, Imperial Companies: Thanks, Rico.

Ricciardi: We’re in a presidential election year. I was wondering if you have a view not so much on who might win, but in terms of depending on who wins, how that might impact just not the economy but also the real estate market at large in the U.S.

Fascitelli: What’s happening and what I’ve seen so far is that the real estate market and other capital markets have been quite volatile and shaky… starting basically in the summer. We’ve seen… the first of this year or two, one of the worst years of the start of the markets, I think, in nine years. I think the uncertainty over the election has been more problematic than who might win. Obviously, people’s views toward who might win vary and their views toward what the economic investment climate [could be] under that person vary greatly, right? The uncertainty is causing a lot of pause right now in terms of investment dollars. We’ve seen a slower investment market and I think the election has something to do with that.

Ricciardi: Do you ever get any sense that there’s a reluctance for people—at least as it relates to office or, for that matter, residential—to contemplate gateway cities to the extent that they have a concern about potential acts of terrorism?

Fascitelli: Yes, we’ve seen that. I think people have it in their daily life. I don’t think they choose against it. For a while, the World Trade Center complexes were difficult to fill because people felt like that was a target. It happened before. I don’t think people are not moving to New York because it’s basically less of a terrorist attack than maybe someplace in the Midwest, right? I don’t see it impacting on the short term. But, obviously, we worry about the risk factor of a terrorist attack. You’ve seen that in Paris—the hotels in Paris were completely disrupted for months and months because of that terrorist attack. So, we’re not immune to it, but we go about living our lives without that being a decision on where to go because, 99% of the time, you want to live… and work where you want to and not let terrorists influence that. But you still have it more of a share of mind, given the events that have happened over the last five or 10 years that we wouldn’t have thought 10 or 20 years ago.

Ricciardi: A bit off the beaten track question: given that Imperial focuses on gateway cities—like New York and Miami, both of which are coastal cities—interestingly, there are different forecasts that suggest that, over the course of the next 75 years, global warming is going to meaningfully impact coastal cities. Do you guys have any accounting for that? Do you take that into consideration when you look to buy?

Fascitelli: It’s a consideration, but in Miami particularly, you read a lot. At one of the presidential debates, the Mayor of Miami asked Rubio what he thought about sea levels rising. Rubio said, “Don’t worry about it” essentially. I don’t think it is far out. I think the cities are going to do things to try to mitigate that if that happens, with walls and with buffers. It’s clearly something we think about, but it’s not yet impacted values and whether we do or do not do a deal.

Ricciardi: You’ve been doing this a very long time. What keeps you up at night?

Fascitelli: Usually, I sleep pretty well. The older I get, I sleep even better. I don’t worry about what I can’t control that much. I have enough stuff I can’t control. I think of sudden things like terrorist attacks, sudden shocks into the financial system or somebody doing something really stupid that has cross-contagious effects. Obviously, a dramatic change in interest rates—I worry about that because as an asset class, real estate is a great long-term creator of value, but it’s not a mobile asset class. You can’t move the building. It’s capital-intensive and it’s not as liquid. So, I worry about events. My experience in these events is that people really can’t see around those corners and see them. They only realize they’re here when they’re here. Always it’s a different event than you expect. I worry about more whether we are executing our business plan. Are we getting the rents we want? Are we getting the tenants we want? Are we attracting the right type of people to the thing? Execution is really important. Those things are within our control, but still very difficult to execute.

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