ULI Special Report: JLL Bullish on Capital Availability

By Suzann D. Silverman, Editorial Director

Equity capital is flowing into core, well-located Class A real estate assets, hindered to a large extent by transaction availability, according to Jones Lang LaSalle Capital Markets group findings being announced today during the Urban Land Institute Fall Meeting. With return hurdles to achieve and pricing discipline in place, equity groups are turning instead to creative structuring to meet their goals and close deals, which is not resulting in “a rush to the exits” but is nonetheless producing some bidding wars, affirmed Tom Fish, executive managing director & leader of the company’s real estate investment banking team.

Groups ranging from pension fund advisors to foreign investors, endowments and other institutional players are turning to secondary markets and value-add opportunities. Thanks to the returning CMBS market and low interest rates, they are able to manufacture yield on such deals through financing. They are also structuring an array of joint ventures with operating partners, including traditional coinvestment agreements in which they supply 5 to 20 percent of the equity capital; equity joint ventures with preferential rates and a promote once that hurdle is achieved; and preferred equity structures in which they are able to price equity more cheaply in return for achieving their yield goal, Fish told CPE.

In one recent example, the company arranged a programmatic joint venture equity vehicle on behalf of Sitex Realty Partners and State Teachers Retirement System of Ohio that targets acquisition of small opportunistic industrial deals in Chicago and New Jersey. The fund has a total buying power of as much as $150 million.

In addition to industrial property, Fish is seeing activity in retail and office, as well as the long-popular multi-family sector. While development in other sectors is starting to warm up, multi-family development is now less of an opportunity, he said. “A lot of investors have placed their bets in particular markets” and are waiting for those bets to pay off.

Some groups committed to achieving higher yields for their investors remain on the sidelines, but “there seems to be a deep enough pool of equity capital,” Fish observed, pointing to an abundance of short-term mezzanine capital. “I remain very optimistic.”