GlobeSt.com: You've stated that you're looking to spend between $500 million and $1 billion in 2007. What number will it be closer to?

Blumberg: That depends on the strategy, and the strategy could be REITs or properties. Given that, our goal is clearly $500 million for the coming year, but we've adjusted our debt limits, and that may allow us a little more flexibility.GlobeSt.com: What product types are you targeting?Blumberg: We continue to target urban trophy office, and for us urban has a dual meaning. It could be downtown or a large aggregation of office in a non-downtown location, like the Galleria in Houston, where we already have a building. Our strategy has been to create and enhance premium services in those office buildings we buy and to buy in good, strong locations in cities that are not trading at a premium to reproduction. That leads us into cities like Boston, parts of Chicago, Houston and Dallas. No Florida markets, because Florida markets are at a premium, clearly. GlobeSt.com: What's your hold and what's your return?Blumberg: Our hold varies because we look to sell in a premium market, in a market where someone is paying a bit more. We've held assets for three years and we've held them for 12. In this current acquisition phase, we're looking at three to seven years. Our return goal is typically 15% although we usually exceed that.GlobeSt.com: Someone joked with me recently that if you hold an asset for more than a year, it's too long. Blumberg: It's a valid statement. Landlords change faster than leases expire, and tenants don't have a very good feel for how their building will next be managed. Typically we put in physical and financial improvements and a very strong upgrade to services. That has helped our renewal rates in those long-term properties and we're looking at 90%-plus occupancies for those tenants we've targeted. GlobeSt.com: How much of American Ventures' money is in your portfolio? Blumberg: In our existing portfolio we have roughly 10% in. We've sold off much of our holdings, so it's roughly down to a million sf from three million at the beginning of '06.GlobeSt.com: Are the dispositions a new strategy or simply a response to the market?Blumberg: It's our response to a terrific market. To not be selling in this market is to be buying at that price, and that's not our strategy. We're seeing very high values in gateway markets, values that we can't justify keeping.

GlobeSt.com: But in a statement you released, the emphasis was clearly on acquisition. So will you be a net buyer or seller?Blumberg: It's based on market. Houston is not trading at reproduction yet, so we're definitely a buyer and holding our assets there. In Dallas we're a buyer. So yes, we are a net seller of our portfolio, which has matured, but we'll be a buyer in alternative markets. GlobeSt.com: REITs will also figure in your strategy. What structures are you looking for?Blumberg: We're not going to buy a $10-billion REIT. We'll be looking for specialty office REITs that are regionally focused--anywhere where we have market interest. For many years, I've been talking about REITs and takeovers. REITs are sitting ducks. They can't store cash, they can't buy back their shares. From an LBO perspective, they're just an agglomeration of assets, and the purchases you're seeing now reflect what the breakup value of those assets is vs. their value in the equity markets. GlobeSt.com: How close are you to an announcement?Blumberg: We had some exploratory conversations last year that didn't mature, and I don't have an announcement to hint at right now. GlobeSt.com: You say you've been talking about this for years. But it's certainly all the rage now. What would it take for the dynamic to shift back in favor of the public markets?Blumberg: What would force it to shift back would be an externality, something not inherent to the commercial property market. When you own a huge portfolio of residential, it can become a fungible asset. In the commercial world every property is different and for me the worst concept would be to take an illiquid asset-based company and make it public and focused on quarterly returns. You just will never have a long-term perspective, and frankly, the private market allows you to be far more flexible and far less reticent to take chances.

REITs confer a tax benefit to shareholders, but why would you ever own a portfolio under the rules REITs have to live under without the ability to store cash as needed in a down market, or work in a quarterly public marketplace when much of what one does is very private, or work with institutional investors who don't have long experience and therefore not a lot of loyalty? If there was a down market, I believe the institutional investors would leave immediately, and that would sink stock value. From my perspective, the public markets are never the right way to own commercial property as long as the public markets are so short-term focused.

GlobeSt.com: Have REITs seen their day?

Blumberg: If public-market capital suggests that it's a good way to get into real estate in a very limited form, they haven't seen their day. The plus of REITs is access to capital that otherwise would not flow into major properties. And if that interest continues, no they have not seen their day. But it's a valid question. The REIT world is shrinking considerably and they're not being replaced. Access to capital is there but not in significant amounts.

GlobeSt.com: So where will you be at the end of 2007?Blumberg: We hope to be between $600 million and $1.1 billion. We hope to be widely invested in markets that are undervalued with an active value-enhancement program going on. That may come in the form of buying a company, but we would not preserve the entity, and it would be a traditional LBO.