GlobeSt.com: What are the reasons for your name changeto PCCP?

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Galusha: We have always gone by the name PacificCoast Capital Partners, but our platform has increasingly expandedeast, so we wanted a name change that would reflect our broaderreach. Our reasoning is that someone who is in Texas or Salt LakeCity or one of the other markets where we have expanded might notthink to look for capital at a group that calls itself "PacificCoast." Another factor is that, if you Google Pacific CoastCapital, a number or listings pop up, so that can be confusing.

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GlobeSt.com: What are the geographic markets that younow target?

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Galusha: We are active in all of the Western US,plus Texas and Colorado, as well as markets extending West toHawaii and including the Pacific Northwest. If you look at thewhole country and draw a line just east of Texas, we're everythingwest of there. We make exceptions to our geographical boundarieswhen we have an existing partner that takes us east. For example,we have gone to Minneapolis, Columbus, Atlanta and New York becauseof existing relationships with partners who have investmentsthere.

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GlobeSt.com: What are some of the factors driving yourexpansion beyond your original West Coast markets?

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Galusha: If you look at Texas, for example, it hashad a very good demographic and job growth story. It has also beena good value proposition relative to some of the other marketswe've been in lately like Phoenix or Southern California, wherevalues just went into the nosebleed territory. We've found thatwhat we would pay in these higher-priced markets, relative toreplacement cost and other considerations like cost per sf, was notcomparable to the discount that we have found in Texas.For example,it's unlikely we would build anything in Houston. Why would webuild an office building for $200 or $300 per sf when we can buyone for $120 per sf?

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GlobeSt.com: When you look for office investments,what type of product do you usually favor?

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Galusha: We have a bias for B buildings that wewill try to reposition up to a B+ by taking them up a notch, ratherthan pursuing the trophy assets. This is across all asset types,for the most part. If you look at our multifamily portfolio, itwill definitely be on average B or B- class assets.

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GlobeSt.com: Do you invest as a sole owner or in jointventures?

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Galusha: All of our equity, or at least 99%, isplaced through joint ventures, so that we really act as the capitalpartner. We do post-closing asset management of the partner, butnot the day-to-day work on the deal itself. There are a few caseswhere we've gotten involved in that, but very few.

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GlobeSt.com: How will your investment decisions thisyear be influenced by the changes occurring in the USeconomy?

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Galusha: I think the theme that you will hear fromus and other investors is a flight to quality. There are probablyabout three facets to that: sponsorship quality, market quality andasset quality. In terms of market quality, investors will look tofirst-tier markets rather than lower-tier markets where theliquidity and depth of demand are shallow. There is also thequestion of long-term versus short-term. In the John Wayne Airportoffice submarket, which is arguably the darling of the OrangeCounty office market, the subprime fallout has vacancy shooting upquickly. The vacancy makes investment in that asset class acontrarian bet right now. But for those who are thinking long-term,this could be a great time to pick up assets.

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GlobeSt.com: What kind of a 2008 are you expecting inlight of your record year of $1.2 bilion in originations in2007?

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Galusha: We're going to slow down because theoverall transaction volume is slowing down. A lot of owners, ifthey can afford to hold, will decide against selling when they findout how much values have dropped. But I think that conditions aregoing to create an opportunity in the middle to latter half of thisyear involving owners who have loans coming due. They may find thatit's a bad time to get new financing and that may drive them tosell as an alternative to trying to find new capital that will beeither unavailable or considerably more expensive. For buyers, thatshould create some opportunities to acquire some assets at goodvalues.

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GlobeSt.com: How long do you typically hold yourproperties?

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Galusha: We have a couple of different funds thathave different risk strategies. The lower risks are morecash-flowing deals that we tend to hold for three to seven years;our more opportunistic, higher-risk deals end up being two to fouryears.

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GlobeSt.com: What are the latest stats on the numberof investment partners you have?

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Galusha: We have 123 equity partners and 111borrowers. Our investor sources are all institutional pensionfunds, banks and life insurance companies, with the exception ofone private investor. We probably have about 25 capitalsources.

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GlobeSt.com: What are your sweet spots in terms ofdollar amounts of investment?Galusha: Our niche has beenthe $5 million to $25 million range. However, as funds like oursraise ever larger amounts of capital, it gets less and lessefficient to originate at those lower levels. So, everyone'sminimum equity investment is climbing. Our minimum is still $5million, but it is creeping closer to $10 million.

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GlobeSt.com: Your web site describes you as a providerof "opportunistic debt and equity capital." Where do you see theopportunistic investments in light of the dramatic changes of thepast year?

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Galusha: We definitely still have a focus onvalue-added deals. In the bull market run of the past five years,you could make very attractive returns without actually addingvalue to an asset. That's explained by cap rate compression andrising rents that allowed investors to realize value withoutactually having to do anything such as a renovation or aredevelopment. Today, in the absence of those conditions, investorsneed to make sure that they have a value-add strategy of some kindto justify getting rent increases. To get those kinds of value-addopportunistic type yields in today's environment, investors hadbetter be spending some capital dollars and have a big T.I. budgetand some creative ideas if they expect to get higher rents.

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GlobeSt.com: In a nutshell, how does PCCP view therest of this year and the next investment cycle we areentering?

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Galusha: We're excited about the repricing of themarketplace. We are in a hiring mode and we will be fund-raising alittle later this year.

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