Holmes says, “the sellers don’t want the stigma on their properties”
of having a deal fall through after 60 to 90 days’ due diligence.
Making it all happen is what Nemer describes as “a seasoned, experienced, deep team and a robust and significant
infrastructure.” The company’s strategy and research team (see
sidebar, this page) provides guidance on the investment strategy:
“What we should be buying, what markets provide good opportunities, sectors or corporations that we should be focusing on,
either from an acquisition standpoint or a disposition standpoint.” The portfolio strategy committee then distills that
guidance “and essentially lays out the game plan for how we’re
going to assemble the portfolio.” The acquisitions group
makes initial determinations on whether or not particular
assets would fit in with Cole’s overall strategy.
On one of the first deals that Jack Fraker, managing director
of investment properties for CBRE in Dallas, did with Cole two
years ago, “It was a multi-building portfolio that included indus-
THE STRATEGY BEHIND THE PORTFOLIO
With the intent of making recommendations “to help guide an
already-disciplined investment process,” Indraneel Karlekar heads
up Cole’s investment strategy group. Joining Cole in May 2011 from
ING Clarion Real Estate Securities, Karlekar says the team is “at the
heart of the investment decision-making process. Everything starts
with the strategy, and once an acquisition has been made, it is monitored and constantly appraised, also by the investment strategy
team. So it’s a full circle, starting and ending with the same team.”
The group focuses on “a few key elements that are essential to
“It’s a full circle, starting and ending with the investment strategy team.”
INDRANEEL KARLEKAR
Chief Investment Strategist
investment management,” Karlekar tells REAL ESTATE FORUM. These
elements include “an outlook on the market, ways of managing risk
in the portfolio, how to optimize the portfolio and how everything
comes together in order to deliver the best investor experience to our
clients and our shareholders. And our portfolio strategy and manage-
ment process is built on established portfolio construction method-
ologies, which you’ll find are mainstream in other asset classes, be it
equities or fixed income. We take that portfolio construction method-
ology and apply a version of it to this asset class.”
The team represents a diverse cross-section of disciplines, Karlekar
says. “We have three people, including myself, that focus on top-
down real estate and economic strategies,” he says. Two more people
are focused strictly on quantitative analysis, and then three analysts
are focused on what Karlekar calls “bottom-up market analysis—
data mining, just looking at market trends at a very granular level.
And then we have another nine people who are focused completely
on underwriting properties.”
Not having a
lender involved
is just one less
moving piece that
could hamper
the deal.”
SCOTT HOLMES
Senior Vice President
trial and office properties.” That meant a mix of property types,
geographies and markets, all requiring different degrees of
underwriting expertise. “I was really impressed with their acquisitions team in that they could do their market due diligence,
the credit underwriting on the tenants and then the financial
underwriting of the real estate—all in a very compressed period
of time,” says Fraker. “In 2010, the capital market cycle was a
little bit down, and they were one of the best buyers out there.”
The Cole teams considered, and passed up, around $100 billion of potential acquisitions over a two-year period to arrive at
the $5 billion in deals that they did complete. Roberts provides
color on what he terms “the funnel approach” to ruling out
deals that don’t fit with Cole’s focus on “long-term, safe opportunities.” Over the course of a year, “we look at $50 billion worth
of potential deals, we look more seriously at $25 billion, we
underwrite and analyze on $12.5 billion and we close on $2.5
billion to $3 billion,” he explains. “The messier credits, shorter-term leases, distressed, value-added—those really didn’t fit our
criteria in the past couple of years” and therefore were easy to
take out of the running.
For 2012, Cole has set its sights on up to $3 billion in acquisitions, and Roberts says about $500 million of that will come
from either BTS or JVs, primarily the latter. “They’re larger
deals and typically a little more closely aligned to our net lease,
single-tenant strategy,” he says.
More broadly, Roberts takes an upbeat view of the near-term
acquisitions market. “We’re expecting to close $1 billion by
April 30, which is obviously on track to do the $3 billion for the
entire year,” he says. “So we feel very good about supply and our
position in the market. We have capital, we have a reputation for
performance, we close all-cash and we’re in very good shape to
meet or exceed our goal this year.” With cap rates likely to
remain stable and interest rates poised to remain at their current low levels for the balance of the year, Roberts adds, “We
think it’s a great time to buy real estate, in some cases below
replacement costs.”
The Cole team is also pursuing a longer-term, overarching
goal. “There is no significant brand name that the investing public identifies with real estate,” says Christopher Cole. “No one else
has figured out how to provide access to institutional quality real
estate and we want to be that brand, we want to be that firm.” ◆
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