a more disciplined approach—they’re more patient, they’re looking for just the right investment at their set price point. There’s a
push and pull there.
MALINOWSKI: For us, transaction volume in 2016 was better than
2015, accounting for about $1.2 billion compared to $800 million.
In 2017, unless we see some really great opportunities for our separate account clients, we should be back to that $800-million volume. The capital flows for core funds have slowed down and that
has historically been a big driver of our acquisitions volume.
RUFRANO: We’re on track to earn about $4 billion in 2016. It’s
hard to predict exactly what you’re going to do and when you’re
going to find transactions. You don’t always match up with expectations, but we have available capital to do $4 billion-plus in 2017. It’s
a tough market right now. For instance, we’ve had a queue in our
industrial fund for some time. We staffed up in asset management
and operations staff and felt we had to go into the market, so we
bought $14-, $17-, $25-million industrial deals and rolled them up
into our fund. The problem is, there’s so much demand for industrial product right now that we’ve held onto all the capital we have
allocated for the sector.
SCHUH: We have a tough time making sense of smaller loans in
our portfolio lending business. The whole-dollar profit on those
small loans isn’t enough to make it worth your time or resources.
RUFRANO: That’s why we buy in the markets in which
we already own product. Half the time spent on evaluating a new acquisition prospect is trying to understand how it plays in the market. It takes a lot more
time than you want to think, because you’re not getting the appropriate reports. We’ve had to employ this
strategy for some time. We do want to buy portfolios,
but we just can’t count on them. If we’re trying to put
out $1 billion a year for industrial, we can’t sit and wait
for portfolio transactions to come across our desks.
PUMPER: What role is development playing within
your investment strategies?
RUFRANO: We always endeavor to build a lot of
industrial. We generally build between eight million
and 10 million square feet of industrial a year. On the
multifamily end, we own Gables Residential. We’ll
continue to build there, but very selectively. Site selec-
tion is key; we’d rather not build at all than build on
the wrong site. We will selectively build in certain
suburbs that are highly populated, have immediate access
to transportation and offer a discount to a CBD within a
commutable distance. I don’t see us doing office develop-
ment and we’d rather redevelop retail than build new.
BONEHAM: We’ve done a lot of development. I’d say
about 50% of our capital committed over the past three
years has gone toward ground-up development or signifi-
cant repositioning of assets. We like both those approaches
for multifamily and office. Our industrial portfolio is very
strong, at 97% leased, and development there is strictly
tied to available opportunities.
SIBILIA: Our feeling is that if you can execute your busi-
ness plan and generate value within two years, you do it.
Outside of that, we’re probably not taking on much risk.
They say no one dies of old age, right? But the older you
get, the more likely you are to have health problems. We
don’t know where we are in the cycle, but the longer it goes
on, the more likely it is to be impacted by an outside force.
So if we can put off risk by two, three years, get out of a deal or even
refinance, we can tackle that. But to be tied up in a four- to five-year
development process? We’re probably not going to do that.
DARJEE: On the equity side, it’s not a major part of our program in
the US. The investments in our general account run along a barbell,
with very high-quality core product on one end and some develop-
ment on the other end as a complement to generate higher yields.
In London, however, development plays an important part as we’re
a high-profile, best-in-class developer. As we grow our platform, we
may grow into more of it in the US but I don’t expect development
to be a major component of what we do in the immediate future.
PUMPER: How about the debt side? Has the general lack of
construction financing presented any opportunities?
DARJEE: We aren’t really funding much in terms of construction.
TIAA was known for its construction-perm financing, especially in
the apartment space. We got out of that just prior to the downturn
and have not gotten back in and don’t expect to do so. We do some
ground-up construction financing through our bank program,
although not a significant amount.
In terms of opportunities in that space, I’m not expecting anything significant. There’s been a moderate pullback in construction
financing, but the expiration of the 421-a tax abatement has pro-
“There’s a common view
that regulations hamper
the banking sector but,
as a nonbank shadow
lender, we’ve certainly
benefited and will
continue to do so.”
“We have a tough time
making sense of smaller
loans in our portfolio
lending business. The
whole-dollar profit on
those small loans isn’t
enough to make it worth
your time or resources.”
Starwood Property Trust