Part 1 of 2
SAN DIEGO-Westcore Properties’ founder and chairman Marc Brutten and president and CEO Don Ankeny bring a competitive background in and out of the commercial real estate arena. The former Ju-Jitsu champion and Ironman triathlete, respectively, lead the growing international real estate acquisitions firm headquartered in San Diego that specializes in well-located, multi-tenant industrial and office properties. GlobeSt.com posed a series of questions to them about what sets them apart from the competition, on predictions for 2014, and more insights into what lies ahead in the commercial real estate market. Ankeny will also serve as a speaker at our upcoming RealShare L.A. conference, held March 25th at the Hyatt Century Plaza Los Angeles.
Question: Westcore Properties’ portfolio recently topped $3 billion in assets. What advice can you share about being successful in commercial real estate?
Marc Brutten: Our people are what set us apart from the competition. We try to hire and retain the brightest in the business. Additionally, it has been important for us to conceptualize the risks of the commercial real estate business. We don’t fall in love with our real estate. Having solid exit plans allows us to be adaptable to changing market dynamics. Our success is built on focusing on where we are in the real estate cycle and if we are not selling our properties we figure that we are buying them back at the bid. Our discipline allows us to remain nimble.
GlobeSt.com: According to a recent GlobeSt.com article, real estate experts are looking forward to a promising 2014. Where do you stand on this prediction?
Don Ankeny: We see positive signs and agree that 2014 looks promising. Companies are getting more comfortable with their business plans and, in turn, confidence is growing. Our clients are committing to longer lease agreements and leasing additional space. For example, last year we signed 395 leases on 5.7 million square feet, representing $230 million of contractual rent. Rents are increasing in most of our submarkets, and we believe they will continue to grow in 2014. With vacancy rates below two percent in certain industrial submarkets, and barriers to entry that make it hard to create new supply, we wouldn’t be surprised to see rents spike in 2014.
GlobeSt.com: You have a history of focusing on underperforming buildings and turning them into viable success stories. How do you find those diamonds in the rough?
Ankeny: We are focused on industrial assets in California and to a lesser extent Denver, Arizona and Las Vegas. Our management team has long-standing relationships with brokers, owners and users in our markets. We pride ourselves on being able to “figure out” complicated deals, and we have a reputation for performing on transactions which is reassuring to sellers. We have a rock-solid balance sheet, which enables us to move quickly when we identify opportunities.
GlobeSt.com: How does Westcore instill the necessary discipline in the acquisition process for commercial properties and avoid emotional decisions that can often times ineffectively guide decision-making?
Ankeny: The discipline starts internally. Westcore Properties has a rigorous underwriting process. We develop base case scenarios for each potential acquisition, creating upside and downside scenarios for acquisitions that must pass an internal review. Our team studies the markets, we price the competition, we look at comparable rents and we research commerce taking place in each area. We do not fall in love with our real estate, which can be the kiss of death in this industry.
GlobeSt.com: How do you create liquidity on your balance sheet?
Brutten: We create liquidity by constantly selling our assets. Key elements to the Westcore Properties business model are to be responsive to the market and adaptable to changing dynamics. We are always looking out for value creation opportunities for our investors. Often times this is accomplished through asset sales. We also have a strong network of high-quality investors that believe in our story and track record.
GlobeSt.com: What are some techniques Westcore employs to underwrite the downside on various investments?
Ankeny: Our primary technique is using conservative assumptions across the board. This strategy helps us specifically on changing market dynamics such as interest rates, leasing velocity, rental rates and exit cap rates.
GlobeSt.com: You mention your ability and the importance of acting quickly in making property acquisitions—how is this accomplished and why is it important?
Brutten: Westcore Properties’ assets include 550 buildings totaling more than 25 million square feet. We have traditionally been an all-cash buyer, which allows us to react quickly to new opportunities. We are also privately held so we can respond to opportunities as they arise without some of the constraints and issues inherent in a public or highly institutionalized corporate format.
Check back with GlobeSt.com for part 2 of this Q&A, where Brutten and Ankeny dive more into opportunities for 2014, challenges and more.