GlobeSt.com: Congratulations on your move into healthcare.

Macfarlan: Thank you. We're exited about. We think it's a great opportunity for our firm and our investors.

GlobeSt.com: How did you determine that that was the way to go?

Macfarlan: We're only as good as the strategies we identify before the herd. This is a great example of our firm doing the research and laying the ground work to discern where the next opportunity is, but it's really just a function of the demographic shifts, the aging baby-boomer population and the $13 trillion they are going to inherit over the next couple of years. That amount of money moving through the system is creating tremendous opportunity, not only in healthcare but in tertiary markets and the resort and hospitality business. So we're real pleased about our ability to get out in front of that wave and try to make investments that will produce above-market returns for our investors.

GlobeSt.com: At your firm's level of involvement can you avoid getting stuck up to your elbows in the sector's regulatory morass?

Macfarlan: Like any business, you have to understand the implications, and the regulatory environment is a big one in healthcare and medical. But the short answer is no, we try not to get bogged down on the regulatory side of healthcare. Where we really try to exploit our expertise is in identifying how those changes will impact the real estate market from a national and certainly regional perspective. That's why we've focused on surgery centers and congregate-care and medical office buildings as well as our traditional secondary and tertiary-market focus.

GlobeSt.com: Certainly there's no end to healthcare's upside.

Macfarlan: You're right. I mentioned the strong demographics, but there are also high barriers to entry given the long lead process. There's lots of different pieces involved that have to come together. But in terms of its potential, there are twice as many people now over 75 as there were in 1950. The longer life expectancy is increasing healthcare spending. People are living longer and with more disposable income. So I don't see it abating. Healthcare spending is expected to double by 2013, and it's currently $1.7 trillion.

GlobeSt.com: You mentioned resorts and hospitality. What other irons do you have in the fire?

Macfarlan: The demographics I mentioned are opening other opportunities. The luxury residence business, the hospitality, resort and private residence-club business are all really a function of the amount of money being transferred to the baby-boomer generation. These folks are inheriting these dollars and they want to purchase second homes and they want to travel. We've invested dollars with a developer that builds ultra high-end private residence clubs. It's all becoming extremely popular. To date, we have projects in Tuscany; in Scottsdale, AZ and in Snowmass, CO. It's been a wonderful opportunity to deploy capital in a great space.

GlobeSt.com: But your core focus is and will be value added industrial and office in second and tertiary markets.

Macfarlan: It's a strategy that not everyone is employing. There are folks who have steered clear of smaller markets because it's harder to assess when to get out.

GlobeSt.com: So how do you get out?

Macfarlan: Let me explain why we go in, and then I can answer how we get out. We go there because fewer eyes are on these transactions. There's less bidding. We don't have to compete with the unbelievable amount of capital and buying pressures that exist in first-tier markets. Typically, there's a 50- to 75-basis point discount to get into a smaller market, so you can make a little better buy. We find the assets are more stable and less subject to the major downward adjustment of a Dallas or an L.A. that can get overbuilt rapidly. The other thing is that there are strong municipal incentives to attract and keep good businesses, and that's great for commercial real estate. St. Louis is a good example. We bought a property there, and they have a fantastic bond program to encourage economic development, with fee exemptions and tax breaks and some great opportunities on construction lending.

GlobeSt.com: Of course the good news going in is the bad news going out.

Macfarlan: I've told our teams not to plan on getting out but plan on holding the assets long term, 10 or 15 years. Our investment horizon is typically five to seven years, but if we're buying these assets and there's solid cash flow and solid tenancy, that's our safety mechanism, and we don't have to sell. That being said, we believe that there will be good growth opportunities and more buying pressure moving to these smaller markets, so they will provide better exit opportunities as the larger markets force cap rates under seven or even under six.

Especially in today's environment, if you look at the whole real estate market as core investing, value investing or alternative investing, core is seeking 6% to 8% cumulative return, value is 14% to 15% and opportunity is 20%. We're playing in value and alternative space. We don't believe there's a real opportunity for core right now. There's a lot of risk when you buy an office, industrial or retail building with a sub-six cap. There's no margin for our investors. If someone tries to sell you core right now, be careful because there's so much global pressure to invest in that space that you really have to overpay.

GlobeSt.com: Those playing in core say that's just not true. Look at the downstream and the upside.

Macfarlan: And there's some validity to that. There's still risk in real estate with a six cap and national credit tenants. I'd just buy the bonds if I were them.

GlobeSt.com: Talk for a bit about the new fund.

Macfarlan: The Special Situations Fund will be raising up to $250 million for the high net-worth and institutional-investment community. It's a continuation of all the strategies we talked about, and we're looking at a cumulative effective return of 15% on a five-to-seven-year investment horizon.