This week I was at a gathering of about 300 pension funds, endowments, foundations, consultants and oh, yes, investment managers.  What brought us together was IREI's VIP conference.  But what kept us together was the gaining of understanding of where we are in this world of institutional real estate investment.  And, from what it sounded like to me, we aren't much further along than we were in 2009.....yet.  Some of the enlightenment came from the announcing of some of the results of the 14th annual IREI/Kingsley Survey of U.S. Pension Funds which will be available for public consumption in April and some from the Quik-Talley questions taken at the event.  Here are some of my takeaways:

1.  New Normal Returns:  Core, 6%; Value-Add, 8-10%; Opportunistic, Mid-teens
2.  40.9% strongly agree that core strategies will predominate in 2010
3.  Investors see decreased target allocations to opportunistic strategies
4.  $34Bn in new capital expected to be committed by U.S. Tax-Exempt investors (vs. $18Bn in 2009)
5.  Investors will increase their emphasis on separate accounts with existing manager relationships
6.  Multi-family is far and away the most attractive property type for 2010.
7.  There are currently 614 funds offered by 480 managers in the market
8.  Regional funds and country specific funds are more popular than global strategies

And here are a few actual quotes (from consultants):
1.  "Every manager that comes to the table to day has a poor track record or no track record which makes it difficult to evaluate them." 
2.  "The level of fees is not as important as the structure of them." 
3.  "The most common change to terms we're seeing is a one-year extension of the investment period."
4.  "The most common change to fees is a reduction in Asset Management fees (by and average of 28%)"
5.  "The first 'screen' in evaluating a manager:  is there a strategic fit with the investors existing portfolio and objectives."

Okay, so there is some of the stuff that I heard from the stage.  What did I learn from individual conversations with people?  Well, I'm not going to share that with you as that's stuff that I may be able to benefit from personally.  But the overall mood was optimistic and realistic.  Things are moving slower than people had hoped but it's not like things have turned from dark to light just because we started a new year.  There seems to be a strong interest in debt, distressed and otherwise.  There is also an interest in recapitalizations.  However, so you don't have to rely on me totally for insight I suggest you seriously consider attending this conference next year. 

BTW, the venue for the VIP Conference was one of the most spectacular pieces of real estate I've ever seen.  Terranea Resort in Palos Verdes, California offers almost 360 degree views of the Pacific Ocean.  This photo is a rainbow that came out for just a few minutes after the rain stopped.  The photo was taken just outside my hotel room.


On the road....
2/17-19: Raleigh/Durham for meetings and to be a judge in the UNC Kenan-Flagler Real Estate Challenge
3/14-25: Boston to attend the PREA Spring Conference
4/12-14: Dallas to attend the UBS Annual Client Conference
4/21-23: Venice to attend the Annual INREV Conference
4/26-30: London






These are my views and not that of my employer.

The Changing Road

The word I've heard most this week is 'Change.'  It's not just change in the amount of capital (formerly known as The Wave of Capital) ready, willing and able to be invested by institutional investors nor just about the changes that investors are looking for in fund structures nor just about the control that investors are seeking nor just about the stronger interest in separate accounts, club deals and one-off transactions and of course the changes in fee structure that investors are clamoring for. It is about all these things but it's about more too: about how people get compensated, about the types of new advisory businesses that have been and are being launched, about the way deals get financed, about the jobs that disappeared and are slowly reappearing, about whether bigger is better. Mike Golubic of The Townsend Group wrote an excellent piece in the Spring, 2008 issue of PREA Quarterly. Here's an excerpt:

"The last five years (2003-2008) have seen the number of available funds double and the total assets under management more than quadruple. Over this same time period, investor appetite has continued to exceed the existing capacity, and as a result, investors have had to wait in lengthy contribution/deposit queues to get new money invested." Boy oh boy, how things have changed!

When I graduated high school, my parents gave me a graduation card. What I remember about it is that it had drawings of a path that my parents hoped I would follow: College. Career. Marriage. Home. Family. Country Club. Retirement. I don't think I bought into it then and in hindsight, while some of that path ended up the road I did follow (although a lot of it was 'Driving With My Knees') it reflects the values of their generation; a generation to whom owning a home represented the American dream. Well, as John Lennon said, "The dream is over." Americans are walking away from their homes by the thousands, simply mailing their keys back to their lender (if they even can figure out who the lender is). These are not all situations where the value of the house/condo is less than the mortgage on it. And it's not limited to people who can't afford to pay the mortgage. But the sad and somewhat scary thing about this is that, for those folks, their dream may be over for good. In the world of high finance, there is always news, always talk and as a result, some action. But as I talk with people around the country, we are in very, very bad shape and we seem to be spending our resources on things outside helping our own people. When history looks back on this period in American history. They may even title the chapter, "The American Dream Is Over." What a legacy!

The photo above was taken almost a year ago to the day.  It's of my father with The Jill, the airplane that he and a pilot brought cross-country in 1945.  It is a single-engine Japanese war plane.  I'd written here some time back about this experience and how much it meant to him.  I found the plane through the Smithsonian who had it sort of buried in one of their warehouses.  I only recently discovered this photo that was taken that snowy, icy and cold day but for my father, it gave him one of the warmest feelings of his life.



On the road....
2/9-11: Palos Verdes, CA to attend IREI's VIP Conference
2/17-19: Raleigh/Durham for meetings and to be a judge in the UNC Kenan-Flagler Real Estate Challenge
3/14-25: Boston to attend the PREA Spring Conference
4/12-14: Dallas to attend the UBS Annual Client Conference
4/19-20: New York to attend the ING Annual Client Conference
4/21-23: Venice to attend the Annual INREV Conference
4/26-30: London

Restaurant of the week: Inside Park at St. Barts (http://www.insideparknyc.com), 325 Park Avenue, New York. This space is a hidden gem, right on Park Avenue. It's got an eclectic menu and is pretty quiet so it's good for a business lunch. My salad was excellent. During the spring/summer/fall there's a great al fresco eating area which excellent for people watching.













These are my views and not that of my employer.

What we give up along the way

The ponds in Central Park had a thin layer of ice this morning with the temperature at 16 degrees and with wind chill -1!  And like the warnings to potential skaters, it seems like investors are slowly and carefully testing out the depth of the ice or perhaps the depth of the institutional real estate investment market.  Those of us who have tested out the ice on a pond know how putting one foot in front of the other, very, very slowly goes.  We're a little tentative until we feel solid footing and then we turn around to our friends who remained on the shoreline and say "Hey look at me!" And just then, you hear that terrible sound of ice cracking beneath your feet and your heart starts pounding and while your instinct is to turn and run (back to your now laughing friends) you turn and go slowly, inch by inch, step by step until you reach land again and say "Phew, it was fun but I wonder if it was worth the risk.  

Some people call it work/life balance.  Others call it compromise.  Still others may say prioritizing.  Whatever you call it the result is that there are things we give up along the way.  When I first started traveling for work it was all weekday trips meaning I would be home over the weekend.  So, I didn't miss many of my sons’ weekend activities.  But I did miss the weekday opportunity of 'spontaneous parenting'. I wrote an essay on this a few years back called, "Hey Dad" which described my feelings of not being around (due first to travel and then to separation) when one of my sons could just yell down from his room, "Hey Dad, can you come up and help me with something?"  But that's one of the things we give up along the way.  But it's not just family matters that are affected.  When we travel, we can't commit to things that occur on a regular basis:  taking a class, volunteering, joining a band or just having some regular routine in our lives versus our work life.  We all have to give up certain things along the way and at some point, looking back, we may regret what we gave up or what we compromised on mainly in the spirit of our careers.  But one of the things that I learned from "The Power of Now" is to forgive myself for the past....for the past mistakes, for the past bad behavior, for missing out on the things I'd given up along the way because thinking about those things can 'make you crazy and old before your time' (Crosby, Stills & Nash from 'You Don't Have To Cry').  And the same holds true for the future.  "Who knows what tomorrow may bring?" (Traffic) And trying to imagine what the future holds can also drive us crazy.  That's why living in the moment, focusing on doing the best we can with what today offers us, accepting what is, no longer paddling upstream has lifted a burden off my shoulders.  I can't go back and recapture things I gave up along the way.  But I certainly can capture those things that present themselves to me today and all the future todays I have left.  

Restaurant of the week:  Norman Rose Tavern, 1401 First Street, Napa, CA (http://www.normanrosenapa.com).  As described on their website:  “that comfortable spot where you can meet family and friends for a nice pint or glass of wine paired with a great burger or other classic, American comfort food.”  It's true!

On the road....
2/9-11:  Palos Verdes, CA to attend IREI's VIP Conference
2/17-19:  Raleigh/Durham for meetings and to be a judge in the UNC Kenan-Flagler Real Estate Challenge
3/14-25:  Boston to attend the PREA Spring Conference
4/12-14:  Dallas to attend the UBS Annual Client Conference 
4/19-20:  New York to attend the ING Annual Client Conference
4/21-23:  Venice to attend the Annual INREV Conference
4/26-30:  London





These are my views and not that of my employer.

The Power of Now

There is no question that the new year has brought new and renewed interest in investing in the institutional real estate community.   That's not to say that every pension fund, endowment or foundation has an 'open to buy' but clearly there is more focus on looking forward at opportunities than looking backward at distress. The funny thing is that in many ways, the forward opportunities will come from dealing with distress but that's just the period we're entering.  I've been involved in creating value from distressed commercial real estate and loans for a long time but things used to be simpler.  There was a property.  There was a first mortgage.  We all knew who each other was and how to find each other.  When it came time to deal on a situation in hindsight it was pretty simple.  Well, as time has gone on, this and other things in our world have become more complex.  However, the underlying skills needed to work out a problem property at the property level are still pretty much the same.  My old industry friend, Bob Barclay, who runs North American Realty Advisors, has used a phrase in his marketing pitch for many years, "Creating a silk purse out of a sow's ear."  It's pretty graphic but they and a handful of others have been able to do just that, not only with underperforming commercial real estate but also with environmentally tainted properties in the Rust Belt.  However, the untangling of the complex "Capital Stack" as it's now known, is more cloudy than clear and that's why it's not just any Larry, Moe or Curly who can be successful in some of these type deals that are in the offing today and tomorrow.  But with new capital seeming to be ready to step up to the plate, this is looking like it's going to be a very, very interesting year in our industry and I, for one, am glad to be in the hunt and are expecting 2010 to be a lot more fun than "the year which will not be mentioned."

Timing may not be everything but it means a lot.  Recently, I was given a book to read.  It was a book that I had been exposed to a couple of years ago but at that time the message didn't resonate with me.  This time was different. Very different.  And the message was not only loud and clear but I was ready and able to accept it's premise and immediately incorporate it into my life.  I have seen and felt a positive change within me that is very powerful and very healthy.  It feels good and while I have been aware of my own demons for many years, they had continued in one way, shape or form, keep pulling me back from breaking away and really enjoying life every time I thought I had broken away.  The book is called "The Power of Now."  I won't ramble on here about it any more.  Just wanted to mention it and leave it to you to decide for yourself.

 
Photo:  Sean Felix with his first drum




On the road.....
Feb. 9-11:  Rancho Palos Verdes, CA to attend IREI's VIP Conference
Feb. 18-19:  Chapel Hill, NC to attend and be a judge at the Kenan-Flagler Real Estate Challenge
Mar. 24-25:  Boston to attend the PREA Spring Conference



These are my views and not that of my employer.

On the Road-Long MLK Weekend

Many of you have been following this column for a number of years so you guys know that for 10 years I worked for Institutional Real Estate, Inc. and was intimately involved with some of their conferences, particularly the VIP Conference.  So with that as a disclaimer, I learned today that there are still some openings for people to sign up to attend that event.  I'll be there and for the past two years we, Aviva Investors, have also done a modest sponsorship of the event, namely the chocolates on your pillow.  However, all that aside, this event has become a signature event of the institutional real estate world and is organized in the professional style by which has built IREI's reputation, representing the tax-exempt real estate investment world.  Suffice it to say that if you are not already planning on attending the VIP Conference, I'd suggest you seriously think about whether, given the very strong turnout of pension funds, endowments and foundations who will be there, it's a meeting that you can't afford to miss.  Here's the link for information and registration.  I look forward to seeing you there (http://www.irei.com/web/do/pub/seminars/description?id=1549).

Seeing the video of the situation in Haiti-there are no words to describe it.  Is there any way to imagine what it's like to be in a natural disaster?  It's not like war where people basically expect to die.  This is just another day and Wham-O!  My only experience with an earthquake was the first year we had moved to Napa, CA.  It was 1:37am on the Monday of Labor Day weekend in 2000.  We were awakened by the sound and then by the feel of our house moving up and down as if we were riding the waves at a really good surfing beach and a strange blue light.  Our first thought was that a truck had hit the house.  Then the sounds of some of our stuff breaking and then things falling off the walls and hitting us.  When all this stopped we surveyed the damage.  Nothing structural.  Just some stuff broken but boy did it scare the living daylights out of us.  That particular earthquake, at a spot where the seismotologists hadn't previously known there was a fault line, was 5.2 magnitude.  The one in Haiti was 7.0.  After we cleaned up the broken stuff we started talking about moving back to the east coast.  But I guess we just slipped into the same M.O. that we've learned exists out here....we forgot about it.  But in Haiti which is being talked about as the second most devastating in history is just something that almost is beyond belief. Estimates as high as 500,000 dead are being mentioned.  This would make it a number normally associated with a nuclear attack and would be second only to the one that killed 860,000 people in Shanxi, China in 1556.  The most destructive earthquake in modern times also occurred in China, when a quake in Tangshan in 1976 killed almost 270,000. But regardless of the numbers, a natural disaster like this once again has to make us think about how fragile the whole damn thing is.   What I still can't grasp is why people are still killing each other instead of celebrating life and finding the joy that we are able to find if we just let ourselves.  I know all of our hearts and helping hands go out to the people of Haiti.  If this type of thing were done as a reality show, no one, would ever believe it could be true.

Restaurant of the week:  SushiSamba, 245 Park Avenue South, New York (212) 475 9377 (http://www.sushisamba.com).  Offering the unlikely combination of Japanese/Brazilian but, hey, why not?  It's a busy place with an extensive Sake menu (I had the cheapest bottle from Nigata, where I had once visited and it was excellent).  It's a little loud for a business dinner but then again shouldn't business be fun?

On the road.....
Jan. 20-21:  Des Moines, Iowa
Feb. 9-11:  Rancho Palos Verdes, CA to attend IREI's VIP Conference
Feb. 18-19:  Chapel Hill, NC to attend and be a judge at the Kenan-Flagler Real Estate Challenge
Mar. 24-25:  Boston to attend the PREA Spring Conference

You don't have to be going straight-Just Forward!

I found something called "The Scary Times Success Manual" this week.  It's written by Dan Sullivan who has a company called Strategic Coach.  With so many people facing challenges I thought the this was very poignant.  Here are the 'headlines.'  Let me know if you'd like me to send you a copy of the whole piece.

1. Forget about yourself, focus on others.
2. Forget about your commodity, focus on your relationships.
3. Forget about the sale, focus on creating value.
4. Forget about your losses, focus on your opportunities.
5. Forget about your difficulties, focus on your progress.
6. Forget about the “future,” focus on today.
7. Forget about who you were, focus on who you can be.
8. Forget about events, focus on your responses.
9. Forget about what’s missing, focus on what’s available.
10. Forget about your complaints, focus on your gratitude.

Without knowing that I had been mulling it over, my wife recently surprised me with a Kindle.  I read almost continuously and love books and wasn't sure if I could 'give up' the 'book.'  I love my Kindle. It's great for travel although it's considered 'anything with an on-off switch' by the flight attendants so you have to wait until 10,000 feet and shut it down on landing.  The ones I've read on it so far are:  On the Road, The Crossroads Cafe, Fireflies in December, Still Alice, The Time of My Life, Twenty Thousand Leagues Under The Sea, Last Words, What the Dog Saw....

Our industry colleague, Jim Hime of Lionstone Group has just published his third novel.  This one is called "Where Armadillos Go To Die."  I have not read it yet but I have read Jim's two other books which were excellent mysteries set in the Southwest.  Congratulations Jim.  I'll be picking it up this weekend.

RCA's first U.S. Capital Trends Report of 2010 came out the other day.  While the NY Times had an article today "Further Slide Seen in NY Commercial Real Estate"  I think this opening paragraph from the RCA report bodes well:

The overall universe of commercial real estate players might have shrunk in the downturn, but a significant group of new players have gathered on the sidelines and are waiting to deploy capital. Transaction volume in 2009 was historically low, and accordingly, the number of new entrants into the direct property market was the lowest in years. However, it is clear that there has been a notable pickup in activity by new buyers over the past few months.

In addition we've been seeing more Family Offices showing sincere interest in investing in real estate, many for the first time.  It's just that those entities are hard to find as they like to stay below the radar.  Maybe I would too if I had some serious money!

Photo: This morning.  The Rockefeller Center Christmas Tree's last hurrah.

Restaurant of the Week:  Spice Fusion, 8th Avenue bet. 47th & 48th in Manhattan.  If you walked by this place without knowing about it you probably wouldn't go in.  You should.  (http://www.myspicefusion.com)

On the road.....
Jan. 20-22:  Boston and Connecticut
Jan. 25-26:  Philadelphia and other Pennsylvania spots
Feb. 9-11:  Rancho Palos Verdes, CA to attend IREI's VIP Conference
Feb. 18-19:  Chapel Hill, NC to attend and be a judge at the Kenan-Flagler Real Estate Challenge
Mar. 24-25:  Boston to attend the PREA Spring Conference





These are my views and not that of my employer.

The beginning of a new road

For me, the end of a year is not a time to look back, it's time to look forward. Of course, none of us really knows all that the future (short and long term) hold in store for us. But then there's the idea that we can sculpt our own future to the degree that we choose. Only a few years ago I learned that writing down ones goals for the year (or for any period of time) is more powerful than simply thinking about them. I've been working on my 2010 goals and while I want to make them achievable I also want them to be things that require focus, perseverance, fun and some reach.

In addition to RCA's stats showing increased volume of transactions, there are some other signs of life in our industry. I've gotten more calls from recruiters in the past month than I had through most of 2009. People are hiring again; getting ready for the next cycle or adding people with specialized talent to augment their existing capabilities.

Serendipity Strikes Again: On a recent flight from Montreal to New York I sat next to Vanessa James who with her partner, Yannick Boheur were just named to the French Winter Olympic Figure Skating Team. She's a really nice kid and a beautiful skater. Now I have a reason to watch those games and root for them!

2009 was a challenging year for many of us (dare I say most or all of us?) and while every year offers it's own challenges, this particular one that ends today will probably be remembered mostly as the year we wanted to see end.  But, there were also some special things:  my Dad getting reunited with the WWII plane with which he had a life-long love affair, my grandson Sean being born, my finding support from you guys (and other friends) as my father passed away and simply the joy of being alive and being able to look forward to and make plans for the next year.  We've all had our smiles and tears; after all, that's life.  But as we watch the full moon tonight and raise our glasses to bring in the New Year, I want so share with you something I took from the book, "All I Need to Know I learned in Kindergarten": 

No matter how old you are-when you go out into the world, it is best to hold hands and stick together.

 Cheers and Happy New Year!

Photo:  (l) TimeWarner Center, New York (r) Sean Felix: On the Road


On the road.....

Jan. 4:  Menlo Park, CA
Jan. 13-15:  Laguna Beach, CA to attend and moderate a session at IMN's Seventh Annual Winter Forum On Real Estate Opportunity & Private Fund Investing
Jan. 20-22:  Boston and Connecticut
Jan. 25-26:  Philadelphia and other Pennsylvania spots
Feb. 9-11:  Rancho Palos Verdes, CA to attend IREI's VIP Conference
Feb. 18-19:  Chapel Hill, NC to attend and be a judge at the UNC Annual Real Estate Conference and Kenan-Flagler Real Estate Challenge
Mar. 24-25:  Boston to attend the PREA Spring Conference
Mar. 25-26:  London to moderate a panel at IMN's European Distressed Real Estate Symposium
Apr. 14:  Dallas to attend the UBS Investor Conference





These are my views and not that of my employer.