First, let me share with you some comments I received from readers of last week's column:
From the head of real estate for a corporate pension fund:
I think we have been in a secular trend for the past 20 years starting in 1992 when we (institutions) started to foreclose on properties and forced the increased investment sophistication of service providers like LaSalle Partners, CB, Cushman & Wakefield, etc… those of us with MBA’s back then essentially created many analytical metrics that started that trend towards becoming an asset class. Remember in the 1998 NAREIT conference in NYC when Ibbotson released their first asset allocation study utilizing RE and it took about 5 years before institutions really accepted RE. I believe that trend continues and is becoming global. I have revamped our RE equity strategy completely and am now investing aggressively outside the US via both public and private vehicles. I recently awarded two $100mm non-US REITs mandates and have made several commitments to Emerging Market funds. I believe this is the wave of the future as public and private are complementary and when combined create an attractive portfolio greater than the parts. This is concept is not revolutionary but evolutionary as we need to figure out how we, as an asset class, fit into the larger picture, especially on a global basis.
And, from a senior guy with a leading industry information services company:
Steve, the market has truly changed permanently. Of course, there will be a gradual clearing of the distress bought at varying levels of return, but we are rapidly moving away from a private market to a public one. Information access is the transformational catalyst. Capital is global. Information is becoming global for our market. Even though returns will likely not be what we remember as the “good old days”, commercial real estate as an investment alternative still offers a compelling value proposition compared to other equities (buy on margin, depreciation, tax deferral domestically). Long-term, the market will be more stabilized, and I agree with “Bob” that returns will be generally lower. For now, every property is “distressed” until it’s priced at a re-stabilized level for the market. Investors will act when there is enough information (internal or publicly available) to compare it to alternative investment opportunities. Good operators will get the best returns, because they will achieve a better return over time for at any price level paid. Meanwhile, this late recession period is a time when investment assets will revert to their “rightful” owners, those who know how to buy, operate and hold commercial investment real estate. The key is finding the deal in the first place, having your powder dry, and your pencil sharp.
Clearly there is a lot of 'new' thinking going on in our industry and clearly this is not the RTC days. We are a more sophisticated bunch with a lot of lessons learned at every port of call. As we move into the third quarter (can you believe it) there is more interest in investing in real estate and the instant liquidity attraction of real estate securities seems to be attractive to both experienced and novice institutional real estate investors. But, in terms of fund formations, one thing looks like something we've seen before: the launching of multiple funds, with different strategies, by the same manager seeking to be all things to all investors. If there is one thing that many have learned in the recent past it's that manager focus and ability to stay from style drift are two important factors when investors and consultants evaluate managers. Desperately Seeking Opportunity without the experience to back it up will not be an acceptable menu option any more. We have learned too much.
Sunday will be the first Fathers' Day for me without my father. As many of you who shared your stories with me last fall when my Dad was dying and finally passed away told me, it takes time to get through both the actual loss and the feeling of loss. Sometimes I still think that my Dad will answer the phone when I call him on Saturday morning but I don't think there is cell service in heaven yet (maybe when 5G is available!). I've already experienced my Dad's first birthday where the counting no longer matters (unless you are a Mozart or similar type guy where celebrations of your birth are an annual event for the public) but on his birthday I raised my wine glass in a toast to him (whose favorite was chardonnay) and on Sunday I'll look at some old photos and take a momentary pause to close my eyes and remember the guy who, while he was not Mozart or Shakespeare or even Mickey Mantle, left his mark. It's a mark that those of us who are fortunate enough to be a father (or parent) in their own right have the chance to leave with their children and their childrens' children and their childrens' childrens' children. So we need to remember that actions speak louder than words and it's the actions, more than the words that are remembered, for better or worse through the ages.
