{"id":1004356421,"date":"2019-09-30T04:02:41","date_gmt":"2019-09-30T12:02:41","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004356421"},"modified":"2022-07-27T23:35:48","modified_gmt":"2022-07-28T07:35:48","slug":"todays-wall-of-capital-where-to-deploy-and-why","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/todays-wall-of-capital-where-to-deploy-and-why\/","title":{"rendered":"Today’s Wall of Capital: Where to Deploy and Why"},"content":{"rendered":"
\"\"<\/a>

DLA Piper Global Real Estate Summit 2019. Left to right: Christopher Merrill, Stephen Quazzo, Pamela Herbst, Susan Swanezy and Randall Rowe. Image courtesy of Michelle Weeks<\/em><\/p><\/div>\n

One of the morning sessions at DLA Piper\u2019s 15th Global Real Estate Summit, on \u201cInvesting Capital in Times of Change,\u201d drew an attentive audience in Chicago as a diverse panel of four experts both discussed issues at the macro level and drilled down into the tactics of fund-raising and investing.<\/p>\n

Moderator Stephen Quazzo, CEO of Chicago\u2019s Pearlmark Real Estate, a boutique real estate manager and principal investor, began by asking, \u201cHow do we marry the needs of the investor today \u2026 with the challenging environment for finding good investment opportunities in real estate? You hear about the \u2018wall of capital,\u2019 trying to find a home, so how do you navigate that?\u201d<\/em><\/p>\n

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See our full coverage of the 2019 DLA Piper Global Summit<\/a><\/p>\n

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\u201cWe pretty much get up every day and just try to make the operating platform better,\u201d<\/em> answered Randall Rowe, chairman of Green Courte Partners, which focuses on manufactured housing, airport parking and senior living. The company, which typically raises a new fund every three years, closed last week on their latest, of about $500 million, Rowe said.<\/p>\n

“Basically, money’s free”<\/h2>\n

A key feature of where we are now, said Pamela Herbst, managing director and head of direct investments at AEW Capital Management, is that \u201cBasically, money\u2019s free.\u201d\u00a0<\/em>Right now, she added, \u201cProbably one of the best strategies is leveraged core, but core investors don\u2019t like leverage.\u201d<\/em><\/p>\n

Low interest rates<\/a> hurt core funds, Herbst continued. \u201cI\u2019m concerned that more value-add and opportunistic funds are going to be competing for our core capital.\u201d\u00a0<\/em>She\u2019s less bullish on office: \u201cJust the cost to bring tenants in is getting incredibly high,\u201d<\/em>\u00a0but is really bullish on exurban apartments.<\/p>\n

An important point, Herbst said, is that investors are starting to understand that, historically, 80 percent of the return from core real estate was from income. \u201cCore real estate really was supposed to be a long-term investment, where you got diversification, it was an inflation hedge, and all those good things.\u201d<\/em><\/p>\n

\u201cThe investor community is starting to get more and more concerned\u201d<\/em> about negative appreciation,\u00a0 said Christopher Merrill, co-founder, chairman & CEO of Harrison Street Real Estate Capital of Chicago. \u201cPeople are thinking about, \u2018How do I get my capital more defensive?\u2019\u201d<\/em><\/p>\n

\u201cLate cycle, we always see people coming into the niche sectors,\u201d<\/em> Rowe commented. \u201cPeople start running out of other things to invest in and start to think more broadly. It\u2019s not any different this time around.\u00a0In the example of manufactured housing,\u201d<\/em> he added, \u201cif it\u2019s fully leased and it\u2019s pretty, the cap rates have been driven down in many cases below 4 percent, because people perceive them as being very safe.\u201d<\/em><\/p>\n

\u201cTo generate returns, we have to lean more toward a value-added strategy,\u201d<\/em> Rowe said. Green Courte is currently turning around a badly neglected manufactured housing community, but, he explained, this takes a lot of resources, so you cannot do many deals of this sort, and you have to be very confident that the return will be there.<\/p>\n

Green Courte bought the asset for about $28 million and anticipates putting $12 million to $14 million into it and ending up with an asset worth about $70 million. How? Rowe explained that 4 miles from this property, Warren Buffett is building an intermodal facility with 7 million square feet of distribution space and 11,000 new jobs\u2014\u201cand there is no housing.\u00a0Affordable housing will be an issue<\/a> no matter where we are in the economic cycle,\u201d<\/em> he predicted.<\/p>\n

Investors and managers<\/h2>\n

Susan Swanezy, a partner at Hodes Weill & Associates, highlighted some of the evolving issues between investors and investment managers. Through all of its offices, her firm meets with probably 250 managers a year, yet works on maybe six to eight new strategies a year, \u201cso we\u2019re highly selective,\u201d<\/em> she said.\u00a0\u201cInvestors are defensive with their positions\u201d<\/em> and have been for a couple of years, and even in opportunistic strategies, they\u2019re looking for income.<\/p>\n

In addition, Swanezy said, \u201cIt\u2019s a much more extensive due diligence process,\u201d<\/em> with an emphasis on cash flow and executing the strategy in a reasonable period of time, given the pending correction.<\/p>\n

Though diversified strategies are still popular, she continued, \u201cWe\u2019ve seen a lot of investor interest in niche strategies, not surprisingly.\u201d<\/em> Hodes Weill took on a life sciences strategy two years ago and are also working on a co-living strategy, as well as setting up funds or programmatic ventures in student housing and senior housing.<\/p>\n

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READ ALSO:<\/strong>\u00a0Cushman & Wakefield Sees Co-Living Tipping Point<\/a><\/p>\n

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In an observation supported by other panelists, Swanezy said that investors are reducing the number of managers they work with\u2014and want to do more with those managers they keep. \u201cInvestors are very interested in co-investment strategies,\u201d<\/em> she said, and are likelier to use funds to access strategies they can\u2019t access on a direct basis.<\/p>\n

\u201cThere\u2019s a huge consolidation right now,\u201d<\/em> agreed Merrill. \u201cYou talk to an investor, they\u2019re saying, \u2018Look, I\u2019m working with 20 managers, I have to cull it down to 10.\u2019\u201d<\/em><\/p>\n

Swanezy noted that investors are much more involved these days, often raising specific concerns regarding ESG (Environmental, Social and Governance) considerations<\/a>, especially among larger investors. Investors also are looking for diversity in platforms, such as women and minorities, and not just at the organization\u2019s lower levels. These expectations by investors are helping to drive consolidation among investment managers, she added.<\/p>\n

Herbst put the conundrum this way: \u201cA lot of clients want smaller firms, that can be nimble,\u201d<\/em> but the costly administrative\/IT\/analytical overhead is difficult for smaller firms to handle.<\/p>\n","protected":false},"excerpt":{"rendered":"

At the DLA Piper Global Summit, executives from Harrison Street Capital, AEW Capital Management and other top investors share insights into late-cycle opportunities.<\/p>\n","protected":false},"author":882,"featured_media":1004356445,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1491,21808,21825,21783,23891,21742],"tags":[33758,36592,33026,47228,36591,37883,33429],"class_list":["post-1004356421","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-chicago","category-featured","category-finance","category-investment","category-national","category-latest","tag-aew-capital-management","tag-christopher-merrill","tag-dla-piper","tag-green-courte-partners","tag-harrison-street-real-estate-capital","tag-pamela-herbst","tag-pearlmark-real-estate-partners"],"acf":[],"yoast_head":"\nToday's Wall of Capital: Where to Deploy and Why - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/todays-wall-of-capital-where-to-deploy-and-why\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Today's Wall of Capital: Where to Deploy and Why\" \/>\n<meta property=\"og:description\" content=\"At the DLA Piper Global Summit, executives from Harrison Street Capital, AEW Capital Management and other top investors share insights into late-cycle opportunities.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/todays-wall-of-capital-where-to-deploy-and-why\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2019-09-30T12:02:41+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-07-28T07:35:48+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2019\/09\/DLA-Piper-Summit-panel-e1569843423409.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"911\" \/>\n\t<meta property=\"og:image:height\" content=\"683\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Scott Baltic\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/todays-wall-of-capital-where-to-deploy-and-why\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/todays-wall-of-capital-where-to-deploy-and-why\/\",\"name\":\"Today's Wall of Capital: Where to Deploy and Why - Commercial Property Executive\",\"isPartOf\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/todays-wall-of-capital-where-to-deploy-and-why\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/todays-wall-of-capital-where-to-deploy-and-why\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2019\/09\/DLA-Piper-Summit-panel-e1569843423409.jpg\",\"datePublished\":\"2019-09-30T12:02:41+00:00\",\"dateModified\":\"2022-07-28T07:35:48+00:00\",\"author\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#\/schema\/person\/61ac1450f3ffaa0e850b834c28526555\"},\"breadcrumb\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/todays-wall-of-capital-where-to-deploy-and-why\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.commercialsearch.com\/news\/todays-wall-of-capital-where-to-deploy-and-why\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/todays-wall-of-capital-where-to-deploy-and-why\/#primaryimage\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2019\/09\/DLA-Piper-Summit-panel-e1569843423409.jpg\",\"contentUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2019\/09\/DLA-Piper-Summit-panel-e1569843423409.jpg\",\"width\":911,\"height\":683,\"caption\":\"DLA Piper Global Real Estate Summit 2019. 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