We’re very active in the value-add space, particularly in multi-family, which currently comprises a majority of our value-add
portfolio. We’re trying to decrease that exposure through sales
of our core multifamily assets, but we’re still actively investing in
multifamily development because it provides a good risk-adjusted return. That, as well as industrial development, are the
two main categories on which we focus, though we’ll consider
any and all product types.
When it comes to office product, our target is about 20% to
30% in the value-add portfolio that I manage. We’re right in the
middle of that, at about 25% allocated. Our value-add, open-end fund investors have expressed that, given where we are in
the cycle, they don’t want us over that target allocation; they
would prefer the portfolio’s investment focus be on multifamily
BONEHAM: We tend to be more strategic investors and, as a
result, we don’t have set targets per se. We’re really looking for
the exceptional opportunities. We’re blessed with a number of
significant sources of capital that are able to be quite nimble, so
we’re able to take on relatively large investments when the
opportunity presents itself.
SHAW: We follow a similar path. We have loose allocations—
sometimes we get out more capital and sometimes we get out
less. It really depends on the luck of the draw in terms of opportunities that become available, and where we feel we have a
REAHL: For Realco, we’re going to try to reach a $2-billion to
$2.5-billion target this year across both the debt and the equity
space. That’s not inclusive of our partnership with Square Mile
Capital, which does bridge and construction debt, along with
opportunistic funding. If you add their expected $2.5 billion,
our organization is looking at $5 billion in total investment. But
that’s a goal, not a mandate, and we’re always looking for the
right opportunities so those numbers can move up or down. We
are an investor first, not a capital allocator.
We’re flexible with our capital, so if the right acquisition
opportunities are not out there for us, we can still invest in
development. Our goal for development is about $1.5 billion
across all property types, and our flexibility is based on pricing.
As long as pricing stays above replacement cost, we’ll look to put
a shovel in the ground. We have the capital and great partnerships with local developers to take advantage of a build-to-core
strategy, whether it’s long-term holds or merchant builds. We’ve
always tried to be responsive to what the market is telling us.
PUMPER: A couple of you mentioned your development
activity. There are certainly abundant opportunities at this
point in the cycle, especially since construction lenders
have somewhat retreated from the market. Has that played
in your strategies?
HALLIWELL: On one hand, it does provide an opportunity as
we can pursue transactions with limited or no leverage. On the
other hand, a lot of our developments are through joint ventures and to make the math work, our partners want some leverage, typically between 50% to 65%. With banks being more discriminating and oftentimes asking for a monetary recourse
component, things are more challenging when pursuing development transactions with private partners. Difficulties aside, the
deals we want to do are getting done and working out well.
VERMIE: We’re also in the no recourse camp. When we can’t get
attractive debt, we view it as an opportunity—given the right
deal—to put our own synthetic debt on it, and essentially have an
all-equity transaction. That helps us to get our equity deployed
and still achieve attractive returns. Plus, we aren’t consolidating
debt on our balance sheet. So it could work in our favor, at least
in the near term until lenders relax a bit.
NORMAN: All of our clients have increased allocations to debt
this year so we have a very large appetite across our fixed-rate core
and floating-rate businesses, including both general and separate
accounts. We’ve been lending on behalf of TIAA’s federal savings
bank for over two years. TIAA just acquired Everbank, so as the
bank balance sheet has grown, our origination targets on behalf
of the bank have grown as well. We also have a large appetite for
the transitional floating-rate, large loan business, with loan sizes
of $60 million and greater. That business is a yield generator for
us and when we sell A-notes, that augments our sub-debt program; we do a lot of mezzanine and B note financing as well.
We are selectively doing ground-up construction in our bank
lending program. We’ve also taken advantage of opportunities
to finance recently completed construction with larger, floating-rate bridge loans to take the deal through stabilization.
Again, it isn’t for ground-up projects; rather, we would come
into a project that’s recently completed and in the lease-up
stage and provide a bridge loan to help it achieve stabilization.
REAHL: We’re active in debt financing on the LifeCo lending
side of our business. It’s not construction lending but rather,
fixed-rate first mortgages for acquisitions and refinancings.
Square Mile handles the bridge lending and financings for construction and special opportunities that fill in the gap that banks
don’t get to.
The concept of remaining
in your style box is
important today with
clients and consultants.
If you deviate from your
strategy and make a
mistake, it’s frowned upon.
PRINCIPAL REAL ESTATE
Our value-add, open-end
fund investors have
expressed that, given
where we are in the cycle,
they don’t want us over-allocated to office; they
prefer to focus on
multifamily and industrial.
PGIM REAL ESTATE