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Pacific Coast Capital Partners, which has invested more than $5.3 billion in debt and equity in the Western US and other markets since its founding in 1998, originally made a name for itself by focusing on properties on the West Coast. But the “Pacific Coast” portion of the name has been something of a misnomer for some time now because the company has expanded into other parts of the West and the Southwest. So it’s not just for the sake of brevity that Pacific Coast Capital Partners is changing its name to PCCP. The new name also reflects the broader geographic scope of the Los Angeles-based company’s investment horizons. Greg Galusha, a PCCP partner based in L.A., talked with GlobeSt.com about the meaning of the name change and the company’s investment strategy in light of changing market conditions.

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

Galusha: We have always gone by the name Pacific Coast Capital Partners, but our platform has increasingly expanded east, so we wanted a name change that would reflect our broader reach. Our reasoning is that someone who is in Texas or Salt Lake City or one of the other markets where we have expanded might not think to look for capital at a group that calls itself “Pacific Coast.” Another factor is that, if you Google Pacific Coast Capital, a number or listings pop up, so that can be confusing.

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

Galusha: We are active in all of the Western US, plus Texas and Colorado, as well as markets extending West to Hawaii and including the Pacific Northwest. If you look at the whole country and draw a line just east of Texas, we’re everything west of there. We make exceptions to our geographical boundaries when we have an existing partner that takes us east. For example, we have gone to Minneapolis, Columbus, Atlanta and New York because of existing relationships with partners who have investments there.

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

Galusha: If you look at Texas, for example, it has had a very good demographic and job growth story. It has also been a good value proposition relative to some of the other markets we’ve been in lately like Phoenix or Southern California, where values just went into the nosebleed territory. We’ve found that what we would pay in these higher-priced markets, relative to replacement cost and other considerations like cost per sf, was not comparable to the discount that we have found in Texas.For example, it’s unlikely we would build anything in Houston. Why would we build an office building for $200 or $300 per sf when we can buy one for $120 per sf?

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

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

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

Galusha: All of our equity, or at least 99%, is placed through joint ventures, so that we really act as the capital partner. We do post-closing asset management of the partner, but not the day-to-day work on the deal itself. There are a few cases where we’ve gotten involved in that, but very few.

GlobeSt.com: How will your investment decisions this year be influenced by the changes occurring in the US economy?

Galusha: I think the theme that you will hear from us and other investors is a flight to quality. There are probably about three facets to that: sponsorship quality, market quality and asset quality. In terms of market quality, investors will look to first-tier markets rather than lower-tier markets where the liquidity and depth of demand are shallow. There is also the question of long-term versus short-term. In the John Wayne Airport office submarket, which is arguably the darling of the Orange County office market, the subprime fallout has vacancy shooting up quickly. The vacancy makes investment in that asset class a contrarian bet right now. But for those who are thinking long-term, this could be a great time to pick up assets.

GlobeSt.com: What kind of a 2008 are you expecting in light of your record year of $1.2 bilion in originations in 2007?

Galusha: We’re going to slow down because the overall transaction volume is slowing down. A lot of owners, if they can afford to hold, will decide against selling when they find out how much values have dropped. But I think that conditions are going to create an opportunity in the middle to latter half of this year involving owners who have loans coming due. They may find that it’s a bad time to get new financing and that may drive them to sell as an alternative to trying to find new capital that will be either unavailable or considerably more expensive. For buyers, that should create some opportunities to acquire some assets at good values.

GlobeSt.com: How long do you typically hold your properties?

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

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

Galusha: We have 123 equity partners and 111 borrowers. Our investor sources are all institutional pension funds, banks and life insurance companies, with the exception of one private investor. We probably have about 25 capital sources.

GlobeSt.com: What are your sweet spots in terms of dollar amounts of investment?Galusha: Our niche has been the $5 million to $25 million range. However, as funds like ours raise ever larger amounts of capital, it gets less and less efficient to originate at those lower levels. So, everyone’s minimum equity investment is climbing. Our minimum is still $5 million, but it is creeping closer to $10 million.

GlobeSt.com: Your web site describes you as a provider of “opportunistic debt and equity capital.” Where do you see the opportunistic investments in light of the dramatic changes of the past year?

Galusha: We definitely still have a focus on value-added deals. In the bull market run of the past five years, you could make very attractive returns without actually adding value to an asset. That’s explained by cap rate compression and rising rents that allowed investors to realize value without actually having to do anything such as a renovation or a redevelopment. Today, in the absence of those conditions, investors need to make sure that they have a value-add strategy of some kind to justify getting rent increases. To get those kinds of value-add opportunistic type yields in today’s environment, investors had better be spending some capital dollars and have a big T.I. budget and some creative ideas if they expect to get higher rents.

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

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

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