By Paul Rosta, Senior Editor<\/p>\n
Top private equity executives who spoke at DLA Piper\u2019s 12th<\/sup> Real Estate Summit in Chicago last week had ample good news to share about prospects for investment, but tempered the mostly upbeat tone with notes of caution.<\/p>\n For USAA Real Estate Co., current economic conditions raise a salient question: \u201cHow do we operate in a world where pricing is at a peak?\u201d said Leonard O\u2019Donnell, the company\u2019s president & CEO. \u201cI don\u2019t think there\u2019s any question that growth is going to be higher in the next two years than it has in the last two years.\u201d USAA Real Estate\u2019s response will be to dispose of about $1.5 billion worth of assets as it completes acquisitions valued at $1 billion. That will make the firm a net seller for the second consecutive year.<\/p>\n Pamela Herbst, managing director & head of direct investments for AEW Capital Management, noted that the firm is continuing to invest in most U.S. core markets. \u201cWe think we\u2019re going through a major renaissance in energy,\u201d a trend that makes AEW bullish on Houston, she said. \u201cWe\u2019re also excited by the fact that supply has been really muted.\u201d For every $1 billion of completed deals, the firm underwrites about $10 billion. As a result, \u201cWe have to be pretty efficient,\u201d Herbst noted.<\/p>\n In a new step for Pearlmark Real Estate Partners, the firm is offering separate accounts for the first time, reported Stephen Quazzo, CEO of the Chicago-based investment management firm and the panel\u2019s moderator. Recently Pearlmark brought in a separate account to acquire a vacant 10,000-square-foot retail asset on Boston\u2019s Newbury Street, the heart of the city\u2019s downtown retail district.<\/p>\n Ralph Rosenberg, global head of real estate at Kohlberg Kravis Roberts, likes the capital markets outlook for his firm\u2019s opportunistic approach. \u201cI actually think that we could be in a very benign levered real estate environment for longer\u201d than many economists expect\u2014three or four years, as opposed to the one- to three-year span that is more commonly predicted. That said, the firm is regularly outbid, a signal of fierce competition for the assets KKR is pursuing.<\/p>\n Panelists devoted a considerable part of the discussion to the challenges of launching new funds in today\u2019s environment, citing pressures on fees, heightened client expectations and the demands of infrastructure. \u00a0\u201cOne really needs a strong capital base to get going,\u201d president & CEO of Harrison Street Real Estate Capital. \u201c(Clients) are busting your chops on fees at the same time they\u2019re asking more from your organization.\u201d Further complicating matters is unprecedented requirements for due diligence and regulatory compliance, he added.<\/p>\n In particular, scale is an issue. \u201cIt\u2019s a very difficult model to sustain,\u201d O\u2019Donnell agreed. \u201cYou\u2019re not going to make any money forming your $250 million fund.\u201d As a result, he predicted, \u201cYou\u2019re going to see continued consolidation in (investment) management. If you have a billion, a billion and a half dollars under management, it\u2019s really hard to maintain the infrastructure.\u201d<\/p>\n In light of these heavy odds, Quazzo, the moderator, had a concluding word to the wise. \u201cDon\u2019t go raise a fund,\u201d he said. Referring to his fellow panelists, he quipped, \u201cCozy up to one of these guys with money.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":" Top private equity executives who spoke at DLA Piper\u2019s 12th Real Estate Summit in Chicago last week had ample good news to share about prospects for investment, but tempered the mostly upbeat tone with notes of caution.<\/p>\n","protected":false},"author":755,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21742],"tags":[],"class_list":["post-1004103743","post","type-post","status-publish","format-standard","hentry","category-latest"],"acf":[],"yoast_head":"\n