ing some whole loans and retaining those whole loans rather
than what we usually do, which is sell and retain mezz.
A couple of other names have since surfaced because we certainly weren’t the only ones who identified that kind of dislocation. Centennial Bank, CapitalSource will do non-recourse, but
the field is still limited. There’s an opportunity to step up and
fill that gap.
I’m in the process of closing a $46-million construction loan in
Long Island City, where we’ll keep the whole thing. Our typical
deal size is more like $100 million and up.
WATKINS: For the right project, there’s ample financing. The
projects that aren’t “Main and Main” are the ones that have
challenging opportunities around the debt, which you can
exploit if you need to.
MCGUIRE: It’s almost like an on/off switch. If the project makes
sense, it’s going to get financed. If a project doesn’t get financed,
then there’s going to be no bid for it.
A lot of lenders are playing defense with their portfolios, trying
to maintain market share. The universe of opportunities for them
has shrunk a little because acquisitions volume is down. Banks are
not really getting aggressive with respect to hotels. They’re pulling
back from construction. And nobody wants to finance retail.
So what does that leave for you? It’s really office and multi and
industrial. The deal profile where we’ve seen people being really
aggressive on is any kind of cash-flowing office deal.
That’s Brookfield’s stock in trade, obviously. We’ve been successful over the past five years in investing in value-add office. We’ve
been really good underwriters of that risk; now we’re seeing banks
or owner/operators who are commercially less sophisticated than
us coming in and doing pricing that we think is a little too warm.
DESIATO: How’s everyone dealing with risk and opportunities?
WATKINS: With respect to multifamily, we see that those value
add opportunities that we like are very often the same value add
opportunities that everybody else likes. Therefore, they end up
pricing more like core to core-plus transactions sometimes.
We looked at an industrial deal that was clearly a value add
opportunity, but it priced absolutely core, and we had to back
out. It’s just harder to find those opportunities.
MORENO: There has to be a particular piece of the deal you
might be able to live with that someone else won’t. We’ve been
able to maneuver within that space and take on conditions that
some others would not.
PUMPER: Brian, do you want to weigh in on office? You’ve
been players in that core space.
WATKINS: On the office side, we tend to be more major market
focused, less suburban. If it’s suburban, it tends to be more the
transit oriented developments with a lot of walkability, maybe
ground floor retail. Of about $4 billion of acquisitions we did
this year, office took up 5% to 10%. A good 60% was industrial.
DESIATO: What about the healthcare real estate sector?
WATKINS: We have on occasion ventured into healthcare and the
medical office space and done well. However, it’s a very niche-y
market. You really need to know your tenant base.
BONEHAM: Absolutely. The average deal size is between $15 and
$20 million. You need to be aligned with the right health provider, but we built a portfolio one block at a time, and took it out
in the fourth quarter.
CARLETON: We’ve got two or three properties that were formerly all commercial office that we have transformed into medical office buildings. Once you had those buildings filled up with
tenants, they were pretty easy to sell.
MORENO: There’s a large pool of buyers.
GIRALDO: In life sciences, we did a JV with Alexandria Real
Estate Equities. Very expensive price per sf in most cases because
they’re very fully built out, high-rent assets, but it’s that stable,
higher income stream component of a portfolio.
But back to the question on office: I think we’ve gotten office
wrong over the past 10, 20 years just as I think the industry has
with too much of it. It’s about 40% of most investment managers’
businesses when it should have been probably 20% given its overall performance history. Things haven’t really changed.
PUMPER: In retail, most of the problems are within apparel
and electronics, which represents 20% of the sector. If you
get away from that and focus on the other 80%, retail is overcorrected on the downside. Therein lies opportunity, but if
you read the press, you wouldn’t think so.
MORENO: We’re buyers of retail, albeit internet-resistant, if
there is such a thing.
In multifamily, the
we like are often
the same ones
likes. They end up
pricing more like
It seems like every time
I hear a panel, every
time I’m at a meeting,
everyone has raised
a lot of money, and
they have a mandate
to put it out over
Island Capital Group