Jeanne Myerson does her own thing, and to that extent, she’s rather like the company she runs. A rarity in this industry, Myerson, since 1997, has been CEO of the San Francisco-based Swig Co., and in that time she has escorted the private-investment firm through a catharsis of sorts, refining its holdings away from hotels–most notably the Fairmont Hotel chain–and upping its stake in office–such as the Kaiser Center in Oakland, CA. When Myerson met up with us, during the recent National Association of Realtors conference in San Francisco, she had just closed on the firm’s purchase of 501 Second St. there, and took a breather to discuss the firm’s acquisitive mode and how that differs from most investors looking for product. To begin, can you untangle the confusion of Swigs in this industry?Myerson: The Swig Co. here is San Francisco is the continuation of the company Ben Swig began in the 30s or early 40s. The third-generation family members are the owners, along with one remaining spouse of the second generation. One of those third-generation members, Kent Swig, started his own company in New York. It used to be Swig Burris Equities. It’s now Swig Equities. He’s also one of 10 owners of the company I run. You’re the first non-family member to head Swig?Myerson: There was a short period when two workout folks were heading the company. That was in 1993. I was brought in in ’97. Your website lists hotels, office and industrial as you prime focuses. But aren’t you essentially out of the hotel and industrial lines?

Myerson: In 1998, I sold most of our Fairmont Hotel holdings and Fairmont Management Co. A year ago, in July, I bought out Prince Alwaleed Bin Talal and his Kingdom Holdings and his 50% ownership of the Chicago Fairmont. On Sept. 1 of this year, I sold the entire Chicago Fairmont interest to Strategic Hotel Capital. Currently, we have what I would call a passive-ownership position, along with Lou Wolf and the prince, in the San Jose Fairmont. That’s our remaining hotel, and we are for all intents and purposes out of that business. Will you keep it?

Myerson: Probably not forever. Nothing’s forever. So what’s the focus now?

Myerson: It’s urban office, primarily on the two coasts. We’re very comfortable as a company with office, and we own about five million sf in Manhattan, and an additional three million sf on the West Coast, primarily in San Francisco. There’s also one office property in Downtown Long Beach and one sort of odd lot, long-term net lease property in Richardson, TX. The industrial holdings are really ancillary. Ben Swig was a very active investor and trader–this was long before the day of the REIT–and he bought several portfolios of net-leased properties. We still own some of those, although we’re down to the locations that we believe have long-term value. But office is the focus. What’s the strategy going forward? You’re definitely in an acquisitive mode.

Myerson: Definitely. We bought Kaiser Center, which is approximately a million sf, and we closed on that June 15 of this year. Yesterday we closed on the purchase of 501 Second St. here in San Francisco. And we have a due-diligence deadline today on another property, which I’m not going to talk about. We’re old fashioned here; a deal isn’t a deal until it’s done. What are your capital sources?

Myerson: Part of it is our own capital. We buy for our own account and with partners. But the largest push going forward is buying with partners, such as at Kaiser Center, where we joint ventured with GMAC’s institutional investment group. We’re talking to a number of capital sources about investing with them and serving as their operating or managing partner. Given our long-term experience in ownership, there are a lot of people out there with passive capital looking for active management partners. We’re ideally suited for that. Is any of the capital from offshore?

Myerson: We’ve talked with a number of German investment folks, some representing high net-worth individuals and some representing funds. Most of our contacts outside of GMAC have been with German or domestic sources. What are your acquisition parameters and how do you balance debt and equity?

Myerson: We’re looking for properties in supply-constrained markets. We’re looking for properties that will hold their value over time, are well-positioned in their class, are perhaps in the path of improvement such as in Oakland. We liked 501 Second because it’s a best-of-class building in the path of growth in San Francisco. We look for intrinsic qualities that will position the property well over time. We’re not interested in commodity buildings that don’t have a story. In terms of debt, we tend to be a moderate debt buyer, anywhere from 50% to 65%. In some cases, such as the Oakland property, our partner had such good access to capital that we put 70% loan-to-coast and were able to pre-fund a number of identified future capital obligations. But we’re not players in the mezz world. And shan’t be?

Myerson: As you said, nothing is never. But unless there’s a real strong turnaround story, mezz gets really expensive. We look a lot for intrinsic cash flow. We look at IRR, but we’re not a short-term opportunity fund or a short-term IRR buyer. Given the trend to buy a fixer upper, add a tenant and make a profit, what you’re saying is rather counter-cultural, no?

Myerson: Everyone’s claiming that’s the game, but there is no low-hanging fruit and to buy a fixer-upper at today’s prices . . . . Do you find you’re being squeezed into more alternative buys?

Myerson: Because we don’t have a fund and we don’t have a clock ticking, we can be more disciplined. We’re looking for good-quality assets. We paid a hefty price at 501, but we weren’t the highest bidder. I’d imagine that your hold is also longer term. Correct?

Myerson: We look at things that way. Depending on who our partners are, we’ll take the opportunity that presents itself. We’re well-positioned for long-term holds, but we’re flexible. Quick flips are not the standard. There are things we’d love to buy, but if we can’t make sense of a number, no way no how, we back out and focus on the things we really want to buy. What worries you about the current investment climate?

Myerson: There are a whole host of things that make me scratch my head. Cap rates are astoundingly low, and with interest rates ticking up, it will be interesting to see how cyclical the industry really is. With oil prices post Katrina and Wilma and Beta, you have to wonder how all of that is going to work. In San Francisco, rental rates have bounced off the bottom and are going up, but there’s negligible job growth. I wonder how high the rents can get. So people are buying at 4% or 5% cap rates on some trophy buildings with the assumption that rents are going up to $50 and above for the entire building. I don’t know how that works. You mentioned cycles. Don’t you believe that our transparency and visibility and accountability make us less cycle-sensitive?

Myerson: When interest rates go up, we’ll see something different. I don’t know what it’s going to look like, but I can’t imagine how you can make some of these numbers work with the leverage people are using. In CREW Network’s recent diversity study, it was revealed that women are still failing to achieve the top spot in their firms. As a woman in the top spot, how do you see the industry’s progress?

Myerson: It’s slow. I think the West Coast is somewhat more open than the East Coast, although that’s just a hunch. In many ways it’s still an old boy’s game, although the West Coast is less provincial. I’ve never had major obstacles, but I don’t think about it much. I do my thing and it works. You need people to hire you who are open-minded, but there is a double standard and I’ve seen it. If a man pushes back or is more assertive than norm, it’s accepted; if a woman does that people get bent out of shape. I do my thing and people can like it or not.

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