STEVE PUMPER: The past three years have seen some of
the highest transaction volumes in CRE history. It’s a unique
cycle, and now the focus seems to be turning to wealth
preservation versus wealth creation. How has that impacted
your strategy in terms of placing your equity? Are you looking at different product types or markets?
PAMELA BONEHAM: This cycle is fundamentally different than
others in the recent past, and our outlook for the economy is stronger now than it was a year ago at this time. We expect the U.S. will
achieve around 3% growth for the year, and anticipate 2.5% growth
for 2019, which is encouraging based on what we’ve seen in the last
several years. Our industry has also had the good fortune of constraint on the supply side. That, combined with the optimism in
corporate America, the impact of recent tax reform and several
other factors make us believe there will continue to be opportunities
in select U.S. submarkets and product types. We’ll continue to see
not only wealth preservation, but also a real opportunity for growth
and good returns. But it’s becoming more selective both in terms of
opportunities and the way in which we actively manage them.
JAMES HALLIWELL: The markets we target vary by product type.
It’s rather fascinating, if you look at the returns, particularly in multifamily, there’s very little correlation between
market size and investment returns. Many of the
so-called secondary markets—be it Nashville,
Orlando, Charlotte or Portland—are generating
rent growth and returns that far exceed some of
the traditional primary markets like Washington,
DC and Chicago. If you’re basing it on empirical
data, it’s about where the jobs are going. And the
jobs are going to markets such as Denver and
Austin—and several other cities that are not the
gateway or traditional primary markets.
And then there’s liquidity. There’s a lot of
US and foreign capital, and a lot of it is flowing
into secondary markets that may have been
bypassed in the past. As factors such as size of
market, or coastal versus non-coastal, have
proven to have little correlation to investment
performance in multifamily, investors are focusing on markets they see having the highest rent growth prospects.
RUSHABH SHAH: We’ve been active across the spectrum of prop-
erty types nationally, but when it comes to the gateway cities, pric-
ing is high, interest rates keep rising and cap rates likely can’t keep
compressing any longer. Quite frankly, we have to moderate our
return expectations. What does that mean? We’ve been seeking
relative value in superior growth markets, or markets that we think
are going to outperform from an income, job or population
growth perspective. Within our existing portfolio, we’re seeing
more growth in many of the secondary markets than in some of the
We terms of product types, there may be opportunities in retail
because there’s been some overcorrection in certain segments. We’re
continuing to focus on development and on participating in different
parts of the capital stack, such as preferred equity or mezz.
We also have entered niche property types that may have
historically been off the institutional radar like manufactured housing.
We’re also keeping an eye on the differential between
the public and private market valuations. That’s starting to tell an interesting story, so there may be some
opportunities there as well.
ERIC EKEROTH: Despite all the negative talk, we’re
beginning to look at retail properties. We’re under
contract with a group locally, looking at well-located,
well-tenanted grocery and power centers. There’s a bit
of an oversold nature to that asset class, and many of
them actually aren’t bad. We’re seeing class A opportunities out there.
MICHAEL DESIATO: Yes, there’s been an overcorrection, and there’s been wave of public to private
deals recently—Prologis and DCT, Blackstone and Gramercy.
Are you seeing a pick up in those opportunities in the investment arena?
JOSEPH SHAW: I have a history in investment banking and we
would forever build parallels between Wall Street and Main Street.
I do think there’s significant potential for reducing the cap rate
differential between publicly traded and privately traded. There’s
enough people in the space that there are true arbitrage opportunities in place, but it’s not something we’re actively doing.
SHAH: Public REITs REITs typically don’t have a need to go and
access private capital. However, because of the current cap rate
differential between private and public market valuations,
they’re trying to prove to the market that their stock and underlying assets are being undervalued. That could create opportunities for us on the private side to joint venture with the public
There’s little correlation between market size and yield.
Many secondary markets are
generating rent growth and
investment returns that far
exceed some of the primary
markets. It’s all about where
the jobs are going.
PRINCIPAL REAL ESTATE INVESTORS.
Lenders have very little spread
differential between making a loan
in an office building in DC and a
loan in a smaller city in the
Midwest. Even though this is a
different cycle, I’m not sure that
when the does end, the smaller
markets won’t feel pain.
JOHN HANCOCK REAL ESTATE