NEW YORK CITY—“We're all running around looking for growth in a world where there is no growth,” Robert Plumb, managing director | group acquisitions at AEW Capital Management, told attendees in the opening session at Thursday's RealShare National Investment & Finance conference here. And there will be more would-be buyers running around next year: Doug Schwartz, managing director with JP Morgan Asset Management, predicted that 2017 would see “more capital than ever” entering the real estate sector, but that influx of investors looking to place capital will follow six consecutive quarters of declining corporate profits. Observed Todd Liker, managing director at Oaktree Capital, “We're in a fragile economic environment.”
On the other hand, said David Gilbert, president and CIO of Clarion Partners, “The US, relative to just about anywhere, looks fantastic.” The all-star panel of institutional investors assembled by moderator Steve Pumper charted several of the challenges, as well as successes, they're seeing at this point in the cycle.
Although multifamily remains a favorite, the sector that came up repeatedly in the discussion as a growth area was industrial. Naturally, the rise of e-commerce is driving both development and acquisitions in the industrial space; however, managing director Scott Kempton of TIAA Global Asset Management pointed out that e-commerce's real estate benefits extend beyond logistics. For better-quality retailers, web-based activity is actually driving traffic to their brick-and-mortar stores, Kempton said.
If the panelists leaned toward industrial, nonetheless they weren't intending to buy it in bulk. To a man, none of the panelists spoke favorably of portfolio acquisitions in the current environment.
Executive managing director, capital markets & asset strategies at Transwestern, Pumper began the conversation by citing deal volume statistics. In August alone, he said, year-over-year transaction volume was down by 23%, while portfolio and entity-level sales were down by 46% from a year ago. The panelists offered insights into why institutions are shying away from paying a portfolio premium at present.
“Another way of saying 'premium' is that you have to take a lot of low-quality assets,” said Schwartz. In order to get the portfolio at the right price, “there are 20% that you just don't want to own.”
Unless an investor is a specialist in the entity portfolio space, “it is hard to find a portfolio that fits your view as well,” Kempton said. “They're kind of an anomaly to us. They work at times, and at times they don't.”
Such a specialist in portfolio acquisitions is the Blackstone Group. “They're able to make sector plays and aggregate assets, and absorb some of the lower-quality assets that come along with that,” said Greg Kraus, managing director|acquisitions at Invesco. For its part, Invesco leans more toward single-asset buys, often in joint ventures. “We're managing different buckets of capital and we just can't afford to take on those dogs and cats that come with a portfolio.”
Added Liker, “It's very challenging to have any concentration of garbage assets at this point in the cycle. It's very hard to lease those assets, it's very hard to move those assets when the time comes that you want to sell them. So that portfolio trade that looks very interesting on paper evaporates in terms of returns.” Sub-portfolios that get broken up “could be interesting” as investment opportunities down the road, though.
Another question asked frequently of large-scale investors is whether they'll be net buyers or net sellers for the foreseeable future. Kraus said that Invesco would be sellers in terms of its closed-end fund vehicles, “but we're still going to be buyers fairly actively where we see the opportunity.”
For example, the company partnered this past spring with Simon Property Group on a 50/50 JV to acquire the Shops at Crystals in Las Vegas for $1.1 billion. “It was an underperforming asset, one that we wouldn't have been comfortable owning and operating ourselves,” but “we felt it was a buying opportunity because of the way MGM marketed the asset,” Kraus said. Simon is managing the property, and Kraus pointed out that it was interesting to observe the operational efficiencies being achieved as the shopping center REIT integrated the Shops at Crystals into its management portfolio.
On the other hand, said David Gilbert, president and CIO of Clarion Partners, “The US, relative to just about anywhere, looks fantastic.” The all-star panel of institutional investors assembled by moderator Steve Pumper charted several of the challenges, as well as successes, they're seeing at this point in the cycle.
Although multifamily remains a favorite, the sector that came up repeatedly in the discussion as a growth area was industrial. Naturally, the rise of e-commerce is driving both development and acquisitions in the industrial space; however, managing director Scott Kempton of TIAA Global Asset Management pointed out that e-commerce's real estate benefits extend beyond logistics. For better-quality retailers, web-based activity is actually driving traffic to their brick-and-mortar stores, Kempton said.
If the panelists leaned toward industrial, nonetheless they weren't intending to buy it in bulk. To a man, none of the panelists spoke favorably of portfolio acquisitions in the current environment.
Executive managing director, capital markets & asset strategies at Transwestern, Pumper began the conversation by citing deal volume statistics. In August alone, he said, year-over-year transaction volume was down by 23%, while portfolio and entity-level sales were down by 46% from a year ago. The panelists offered insights into why institutions are shying away from paying a portfolio premium at present.
“Another way of saying 'premium' is that you have to take a lot of low-quality assets,” said Schwartz. In order to get the portfolio at the right price, “there are 20% that you just don't want to own.”
Unless an investor is a specialist in the entity portfolio space, “it is hard to find a portfolio that fits your view as well,” Kempton said. “They're kind of an anomaly to us. They work at times, and at times they don't.”
Such a specialist in portfolio acquisitions is the Blackstone Group. “They're able to make sector plays and aggregate assets, and absorb some of the lower-quality assets that come along with that,” said Greg Kraus, managing director|acquisitions at Invesco. For its part, Invesco leans more toward single-asset buys, often in joint ventures. “We're managing different buckets of capital and we just can't afford to take on those dogs and cats that come with a portfolio.”
Added Liker, “It's very challenging to have any concentration of garbage assets at this point in the cycle. It's very hard to lease those assets, it's very hard to move those assets when the time comes that you want to sell them. So that portfolio trade that looks very interesting on paper evaporates in terms of returns.” Sub-portfolios that get broken up “could be interesting” as investment opportunities down the road, though.
Another question asked frequently of large-scale investors is whether they'll be net buyers or net sellers for the foreseeable future. Kraus said that Invesco would be sellers in terms of its closed-end fund vehicles, “but we're still going to be buyers fairly actively where we see the opportunity.”
For example, the company partnered this past spring with
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