MALINOWSKI: Fundamentals in most sectors are good, with some
strong rent growth and occupancy numbers. But in the first quarter of 2016, none of the acquisition officers nor the portfolio managers, frankly, had the confidence to go after the larger acquisitions. Again, the big issue is the spread between what sellers want
for their assets—the “whisper price”—and what buyers are willing
to pay. Uncertainty about capital flows and the economy always creates some stagnation while pricing adjusts. I do anticipate an
increase in portfolio activity, especially for industrial assets, as investors see fundamentals there remain strong.
RUFRANO: I’ve seen more rebound calls on transactions being bid
on. You’ll put a number out there, and if the seller didn’t agree,
we’d almost always walk away. Now, we feel like we need to register
a number at which we’d be happy to own that product. And more
often than not we’re getting calls back asking us to tweak it. We try
to be disciplined in the number we put out so that we maintain our
credibility. If they call back in six weeks with a counter, we might
underwrite it. But
EHLI: There’s a born-on date. Pricing is perishable.
DESIATO: When you look at your investment activity in 2016
and your targeted goal for 2017, is it more or less aggressive?
SIBILIA: We’ll probably close out 2016 with half the volume we did
in 2015. Domestic pension plans are going to be back
in the market in 2017, though it’s going to be fairly
contingent upon pricing. We’ll do about the same,
maybe a little more, investment in 2017. We did about
40 transactions, a mix of core and value-add. If the
capital markets cooperate, we may ramp up our plans.
SCHUH: We’re seeing a lot of really interesting lending opportunities for the mortgage REIT at Starwood,
and even some interesting special situations in the
equity space. We just raised $460 million of equity
overnight; we target larger loans in primary markets
and are definitely seeing opportunities for growth.
Increased financial regulations have certainly benefited those of us who are non-bank lenders. With the
banks being clearly more conservative than they once
were, we try to fill those voids in the market.
BONEHAM: Indeed, the regulatory climate has
helped in terms of our lending activity. There’s a com-
mon view that regulations hamper the banking sector
but, as a nonbank shadow lender, we’ve certainly ben-
efited and will continue to do so. Virtual real estate
portfolios on banks’ balance sheets have risen dra-
matically post-crisis; it’s one of the few areas where
you’ve seen a tremendous amount of growth. There
may be an opportunity to do some more deals of that
nature before banking regulations get loosened.
If you look at our assets under management, we had
a very strong year in terms of growth, but it came from
a variety of sources. All in all, two things at play—how
much capital you have coming your way and what the
capital markets will supply in terms of acceptable prod-
uct. Our transaction commitment for 2016 was very
similar to 2015, and I think our projections for ’ 17 are
in the same range, about $1.5 billion to $1.7 billion.
DARJEE: The debt space in general is an area in which
everyone appears to be looking to grow, including us.
Coming out of the downturn we went from a $1-billion
to $2-billion program to one that exceeds $5 billion last year and the
plan is to exceed that in 2017. I’m hearing similar things from our
peers. There continues to be a great relative value and significant
demandand so we’ll continue to grow as we raise new capital and
expand into additional debt programs. And those numbers are just
in the US. The global figure will be even larger, as we placed over $1
billion in Europe and grow our debt platform worldwide.
On the equity side, 2015 was spectacular and we were fortunate to
acquire a number of large, high-quality transactions. We acquired
about $7 billion nationally, which was one of the top years for TIAA.
We’ve done about as many transactions in 2016, although we focused
on some smaller deals and, dollar-wise, it was closer to $4 billion. If
we get to a similar number in 2017, we’ll be happy. But there’s noth-
ing saying we have to get there—we’re focused on quality deals.
EHLI: Our platform has capacity for new investment. We continue
to see strong domestic and cross-border capital inflows and capital
sources appear ample to match last year’s productivity in terms of
acquisition activity. We continue to remain disciplined to add the
right product to match our portfolio and investors’ needs.
BONEHAM: There’s a big difference between an open-end fund
and a separate account, in terms of cash balance. Cash is a great
performance indicator for an open-end fund but it brings a com-
pletely different level of pressure; you can’t sit on too much cash
for too long. However, a separate account client will typically have
remain strong to
balanced, we will
continue to see an
active market for
Deutsche Asset Management
capital flows and
Stockbridge Capital Group