Bridge debt is one of the most competitive spaces right now.
We all expected to hear about a lot of distress in the market at
this stage of the cycle, but that really hasn’t materialized. That is
in large part due to the amount of capital that’s coming into the
bridge lending platforms for recapitalizations.
REIGLE: Equity wants to invest in that space as well. The core,
core-plus, and value-add funds all want to do it because it’s a more
defensive position in the capital stack and yields equity-like
returns. You don’t have to wait until a development is completed
before you start to realize appreciation. We’ve been interested in
those types of plays but they’re really tough to find.
AYGOREN: So the search for yield is still as heated as ever.
On a broader level, we’ve also seen investors go into noncore
asset classes and non-primary markets. Is that a strategy
you’ve found yourselves employing?
REAHL: Realco’s investments in grocery-anchored retail, industrial and good credit office build-to-suits takes us to secondary
markets for value-add acquisitions and development. We do see
a lot of office acquisition deals in secondary markets at 8.5% to
9% yields, which are relatively healthy, but we’re not chasing
those. Interestingly, we do have a strategy involving underuti-lized class A malls located in strong submarkets and healthy
trade areas. We recapitalized five regional malls back in 2015
with Westfield. These are longer-term plays in great trade areas,
where we can ultimately reposition them into core investments.
BONEHAM: As we search for yield, we look at both niche properties and attractive 18-hour or 24-hour cities. In terms of niche
property, we’ve done self-storage investing as well as student and
senior housing deals; the debt side of our business has lent on all
of those product types. One challenge is that equity investment
in several of the niche property types can be relatively small, bite-sized. For institutions like us—and several of our counterparts
around this table—the trick is to be able to make those investments in a way that’s efficient. I think we all struggle with that.
And, we have more experience and an even greater focus on
non-primary markets that generate stronger yields. In suburban
Chicago, for instance, we just attracted Caterpillar’s global head-
quarters to a premier suburban office campus that we purchased
for an institutional investor. There has been a lot of talk that sub-
urban office is dying, whereas we’re doing quite well with that
investment. There are other good investments to be made in what
might be considered “less attractive” markets on paper and we
really focus on identifying them. Some of the other markets that
we were in early this cycle include Austin, Nashville, Charlotte,
NC and Tampa-St. Pete, FL, where a recent apartment develop-
ment is really exceeding our expectations. In addition, Reno, NV,
Las Vegas and Atlanta are all areas that we invested in several
years ago and, today, we’re very pleased we made those bets when
we did. Part of that success is the timing. We were able to get into
these markets at a time when land and construction costs were
different. Things aren’t necessarily the same today.
REIGLE: We, too, are looking outside of the core, urban areas.
That’s not to say we don’t look at urban locations anymore, but we
do look at the suburbs more than we did three or four years ago.
That’s particularly true in multifamily, namely, acquisition of class
B properties with a value-add opportunity. We’ve traditionally
been developers of high-quality class A product, but class B offers
not only a current income stream, but also an opportunity to
grow income through capital programs, which works well with
our core and core-plus funds.
In terms of niche space, we’ve been self-storage investors for at
least 15 years. It’s a very defensive play, with very stable income
and the ability to grow occupancy and rental rates. Compared to
traditional space, self-storage performed exceptionally well dur-
ing the financial crisis. We also have a series of closed-end funds
that invest exclusively in senior housing.
And in the value-add portfolio I manage, we’re considering
manufactured housing, which we have never looked at before.
It’s a way of playing in that demographic— 55 and older, age-
restricted—and in a sector, that has a lot of the characteristics
self-storage had 15 or 20 years ago. It’s a fragmented market with
mom and pop ownership and management. Manufactured hous-
ing presents strong rental-growth opportunities in a very stable,
defensive property sector. Big institutions have demand for that
product but have trouble aggregating assets and building a port-
folio of scale. Our strategy is to do just that—take advantage of
this investor demand and try to acquire well-located assets, move
rental rates through active asset management and try to generate
a portfolio premium upon sale.
VERMIE: Part of our focus for 2017 is venturing into the niche
sector. A lot of the deals we’ve closed have been through funds
that focus on senior housing, student housing, self storage and
manufactured housing, but the opportunity has been small to
date. We’re also very pleased about venturing into some second-
ary and tertiary cities a couple of years ago, such as Reno and
Savannah and some other areas that are attracting attention now.
NORMAN: We financed a large portfolio of highly amenitized
suburban office product earlier this year whereas we normally
tend to stick to the CBD area. But it was a great piece of business
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.
That way, we essentially
have an all-equity
There are good
investments in what
might be considered
less attractive markets
on paper and we really
focus on identifying them.
Part of the success is in
PAMELA SCHMIDT BONEHAM