Gabe Finke of Amstar Group

GlobeSt.com: You're expanding your investment targets to include industrial and retail. Why? And why now?

Finke: We added industrial and retail for two reasons. First, in this environment, we wanted to cast a wider net to find opportunities and still focus on institutional product types. Second, we added industrial and retail expertise to our teams and we wanted to take advantage of that.

GlobeSt.com: How many people did you add?

Finke: Two, but my background is in industrial as well. Before Amstar I was with the Carlyle Group for five years and before that with ProLogis for five years. I've been with Amstar since the middle of '03.

GlobeSt.com: A lot of investors widen their nets these days because they're being squeezed out of core plays. Same with you?

Finke: I don't consider expanding into industrial and retail as new territory, because of my background. We're a value-added player. We look at leasing risk, development risk and repositioning risk as opportunities. Of course it has to be priced right, but we think our return requirements make us competitive.

GlobeSt.com: How do you approach a deal?

Finke: We try to be as nimble as the opportunity demands but as long-term-oriented as the pension funds, and our return requirements are somewhere in between. Our hold periods can be short or long. Predominantly we're developers by training, so we understand development risk and leasing risk as well as anyone, and we can quantify those risks quickly and price them accordingly.

GlobeSt.com: What portion of your portfolio is development and what is acquisition?

Finke: All of our multifamily is development. Industrial and retail will be predominantly development and office will be predominantly acquisitions. Our hotels are acquisitions with a major repositioning component.

GlobeSt.com: It's a great time to be in hotels.

Finke: Our hotel portfolio performed very well over the past year, and we want to leverage that experience and those relationships, so we'll continue to invest in hotels.

GlobeSt.com: How else will the portfolio change in '05?

Finke: We're going to focus to a large degree on the office sector; it's the right time. We'll focus on larger transactions and hopefully find some niche opportunities.

GlobeSt.com: You'll be ahead of the curve.

Finke: Right. We're trying to be countercyclical to the capital markets. People don't want to be in office now, but the fundamentals are improving.

GlobeSt.com: But you'll have to be highly selective, no?

Finke: Yes, but we're optimistic because our forte is finding off-market deals, and with interest rates rising there'll be increased pressure on leveraged owners. Since we're not a highly leveraged buyer we think there will be opportunities.

GlobeSt.com: You'll be looking in all major markets?

Finke: Yes, those with high exit liquidity and, within each, we'll look at the right submarkets. So our focus is not very narrow. We're looking across the board.

GlobeSt.com: You're considering a change in your structure for the first time since you were founded 18 years ago. What can you tell us about that?

Finke: For the first time in our history we're contemplating bringing in domestic institutional investors. It's a little early to talk about it.

GlobeSt.com: Won't that put more pressure on you to put capital into the market?

Finke: If we go ahead with this plan, we'll try to find domestic partners who are like-minded, who want to be in the office sector long-term, who are patient enough to look for the off-market niche opportunities and take advantage of our organization and structure. We're not looking for hot money. It's a long-term business plan and we'll be patient.

GlobeSt.com: What worries you?

Finke: I'm not a big believer in the paradigm-shift view—and I'd put that in quotes. I think real estate, while it's more transparent than it was historically, is still a complex asset class that requires sophisticated investors with deep pockets. I believe interest rates will continue to rise and push out highly leveraged owners. What worries me is if rates don't rise. Keep in mind we're long on cash and short on real estate. So we're looking more for buying opportunities than selling opportunities. It's still a great time to be a seller, although I believe that this will change over the next 12 months. What worries me is that it's not 12 months but three years.