DALLAS–As GlobeSt.com reported earlier this month, Los Angeles-based Karlin Real Estate has expanded by opening an office in Dallas. As part of that expansion, John Holt has been brought on as the director of structure finances. GlobeSt.com caught up with Holt to get his take on the market and why Karlin in entering Dallas now.
GlobeSt.com: In your opinion what is the current state of the Texas and Southwest markets?
Holt: The real estate industry in Texas has benefitted more from this recovery than most other regions of the US because of fundamentals. Our diversified economy, low cost of living, and most importantly the restraint we showed during the last real estate boom helped us come out of the recession in a better position than in other parts of the country. In the past 12 months we have added 375,00 new nonagricultural jobs, which led to a healthy 3.4% job growth in Texas — double that of the US average. With no personal or corporate income tax and a pro-business regulatory environment, the State has been successful in attracting large and small companies from both ends of the country. This bodes well for continued growth in the real estate sector.
GlobeSt.com: Of all the places in the US to open an office why was Karlin so interested in Dallas?
Holt: Strategically it allows us to have a hub in the central part of the United States that gives us greater accessibility to the Southeast and Midwest. In addition, the Dallas office allows Karlin to better manage our existing, Texas-based holdings which includes approximately 3.4 million square feet of commercial and industrial assets. We also have 300 acres of land in Austin, which is currently being entitled for a master planned technology and office park. Finally, I think Karlin and Dallas go well together from a philosophical standpoint. There is an entrepreneurial culture here that I believe marries perfectly with the Karlin culture and that will serve our growth well in the future as we compete to attract young, talented real estate professionals to the team.
GlobeSt.com: What do you see as some of the strengths and weaknesses of the market?
Holt: I believe the biggest strength we are seeing is positive migration to the area. I can see a snowball effect as a more educated and sophisticated work force becomes increasingly available due to a relatively low cost of living, which then contributes to a continuing of the economic expansion in the region. The main weakness is the risk that goes with success in real estate–overbuilding. The low barriers to entry and our State’s position of incentivizing economic development, gives cause for some concern in the long-term. But if the region continues to practice the restraint it demonstrated in the past boom and the financial institutions keep their underwriting standards high we think the market should be stable. That said, we continue to monitor the fundamentals very closely.
GlobeSt.com: In this new role, what will be your first order of business?
Holt: My first order of business and my primary focus will be to source value-add and opportunistic investment opportunities across the firm’s debt and equity platforms. At the same time, I would like to see the expansion of the Karlin brand and its solid reputation across the State.
GlobeSt.com: While Karlin already has a significant Texas portfolio will you also be looking for additional deals? What are you looking for?
Holt: The short answer is yes. As mentioned previously, we feel good about the future for growth here in Texas, and as such, are looking for opportunities that will capture that growth. In addition to acquiring assets for our own portfolio we will be looking to partner with local operators, by providing senior secured debt, mezzanine capital or investment equity. As an operating unit of a private investment company with more than $1.5 billion under management, we benefit from not having a typical investment ‘box’ or constrictive LP constraints. I’m generally agnostic to asset class but enthusiastically seeking value-add opportunities of all types (commercial, retail, multifamily and hospitality) where we can add value, both through the initial capitalization and business plan execution.
GlobeSt.com: Crystal ball moment… where do you see the market in 5 years?
Holt: I am very intently monitoring the legacy CMBS market with a focus on the 10-year maturities of those pesky 2005 – 2007 vintage loans. I think the volume of collateral that could flood the market could be dangerous within the context of a rising interest rate environment. I don’t have a crystal ball, but my rear view mirror tells me that “hot money” in a rising tide market can be dangerous if market participants lack the discipline that we pride ourselves on at Karlin Real Estate.