Stick to Core Values When Investing

LOS ANGELES—“You have to stick to your core values when investing.” That is the consensus from investment panelists at a recent RealShare Apartments conference here in Los Angeles.

According to Jeff Daniels, a managing director at AIG Global Real Estate Investment Corp., “You can chase yield if you like, but you will wind up tripping.” He added that “You have to stick to your core values. Be around where others are building.”

A few of the things being closely watched today by Sean Bannon, managing director of Zurich Alternative Asset Management LLC, are what is happening in other asset classes and what is happening in hedge funds. “Our analysis of what is happening in the marketplace begins with what happens in other asset classes.”

He added that “if you are underwriting a downside, you have to be sure you are being realistic about the concessions. One the downside, you have to look at the near term supply and rent tensions there.”

Longer term, Bannon said, “everyone is playing the same trends. We all have to be mindful of the pendulum and where it is going.”

For Rodney Chu, executive director at UBS, his firm never strives to break any records on a price per foot or price per unit. “We are seeking relative value.”

UBS has been very active in the development space with its capital generally core oriented. “Replacement costs are a key factor when we evaluate transactions.”

Some of Essex Property Trust Inc. SVP Adam Berry's favorite projects right now are amenity projects, where “you have an under-amenitized building and you are taking these garden-style deals and adding significantly upgraded amenities.”

At the end of the day, Berry said, “buying existing product is by definition much lower a risk scale than development… At the end of the day, it is yield vs. risk.” He added that “We look at fundamental market value, cost of capital, where we are today and project where we think job growth will come.”

In preparation for the RealShare Apartments event, moderator Marc Renard, vice chairman and executive managing director of the capital markets group at Cushman & Wakefield told GlobeSt.com that the stability in the multifamily market is attracting institutional capital.

When asked about his take on the multifamily investment market, Renard pointed out that “the overall outlook for multifamily is very strong, based on the recovering economic conditions and job growth. Multifamily, as an asset class within commercial real estate, is viewed very favorably based on the merits of multifamily, which are viewed as less volatile than other property types. Multifamily prices like a fixed income and therefore is intriguing to institutional capital, which are looking to mitigate risk.”

As for what geographic areas investors are finding the most opportunities, Renard pointed to the gateway cities, which would be Los Angeles, San Francisco, Seattle, Boston and New York, and as investors' appetite for risk has increased, he noted that “you have seen the geographic locations where they will invest expand as capital searches for incremental yield. This trend is prevalent in the marketplace now.”