Amstar Advisers, its parent company Amstar Group, and the founder of the Amstar brand—the world’s 690^th richest man, Otto Happel—are suing one another amid a bitter corporate divorce and allegations of slander, breach of contract, and fiduciary duties.

Amstar Advisers, its parent company Amstar Group, and the family office founder behind the Amstar brand are suing one another in what has been billed as a “messy and contentious corporate divorce.”

In a complex series of lawsuits among Amstar Advisers, Amstar Group, chief executive Gabe Finke, and Otto Happel—the founder of the Amstar entities and the world’s 690^th richest man—the two Amstar entities and Finke have filed suits for damages amid allegations of slander, and breach of contract, and fiduciary duties. All sides are demanding a jury trial.

The lawsuits between Amstar Advisers and Amstar Group—the company founded by Happel in 1987 to make U.S. real estate investments on his family’s behalf and run by Finke since 2003—allegedly stem from the termination of Finke as chief executive of Amstar Group by Happel and bring to light important trends facing alternative asset managers, not least those relating to fees, key-man clauses, and the removal of general partners.

Rob Toomey, Amstar Advisers

According to the lawsuits filed by Finke and Amstar Advisers, the relationship between him and Happel—who’s worth an estimated $2.6B after turning his father’s dust-removal business into a global thermal-engineering empire—had deteriorated to the point where the billionaire was “increasingly bitter and competitive” towards “Amstar Advisers and Finke, in particular.”

On October 21, while Finke was on a business trip to Poland, Happel allegedly held a meeting with staff to announce Finke’s termination as CEO of Amstar Group, the parent company of Amstar Advisers, and the splitting of the two entities. Happel is alleged to have accused Finke at the meeting of misappropriating corporate assets and exercising poor professional judgment.

Meanwhile, one of the central claims in Amstar Group’s lawsuit is the accusation that Finke “shifted” expenses from Amstar Group to loss-making Amstar Advisers through the introduction of an advisory agreement that was “proposed and negotiated by defendant Finke and executed by entities that he control[led].”

That advisory agreement, called the sub-advisory agreement in the lawsuits, carried an “excessive 2.4 percent fee generating $7.8M in fees annually for Amstar Advisers.” The agreement was signed in June 2015 and, when applied retroactively to January 2015, helped eliminate Amstar Advisers’ $1.4M first-quarter deficit, according to Amstar Group.

The claims and counterclaims are just some of the wide-ranging accusations in the lawsuits that also include the invalid removal of Amstar Advisers as the GP to two Amstar real estate funds targeting the U.S. and emerging Europe; the alleged poaching by Amstar Advisers of nine Amstar Group employees; Amstar Group allegedly preventing Amstar Advisers’ staff from accessing bank accounts and investment documents following Finke’s removal; the alleged firing of five Amstar Group staff who provided “critical” functions for Amstar Advisers following Finke’s removal; allegedly forcing Amstar Advisers to move from its shared office space with Amstar Group; and Amstar Group allegedly wanting to “bury” Amstar Advisers and prevent them from making payroll in November 2015.

With calls for a jury trial on both sides and allegations of breach of contracts, breach of fiduciary duties, intentional interference in contractual relations, slander, and requests for permanent injunctions, the “case is part of a messy and contentious corporate divorce,” according to the Amstar Advisers’ lawsuit.

In an emailed statement Amstar Group says Finke was removed as CEO of the parent company, Amstar Group, “when it became apparent that his priorities differed from those of the owners”. In the statement, Amstar Group also denied it “interfered” with Amstar Advisers bank accounts, rejected claims that the parent group wanted to “bury” its affiliate and that it laid off five employees after they told the firm they “had signed employment agreements with Amstar Advisers and intended to leave Amstar Group”.

Repeated requests for comment from Amstar Advisers were unanswered.

However, in an interview with PrivcapRE about the splitting of Amstar Group and Amstar Advisers—and before the lawsuits were uncovered—Amstar Advisers’ managing director, Rob Toomey, said the breakup had been “amicable” and was prompted by different “objectives of the various stakeholders.”

“The [objectives] are different now,” Toomey said in the interview on Nov. 16. “For Amstar Advisers, there is no change. We are the same team, we have the same strategy, and we have less distraction, as we are now just focused on value-added and opportunistic opportunities [exclusively] in the U.S. across all the property sectors.”

He also added that LPs and consultants had been “very supportive” of the move. “What they like hearing is that it’s the same team, that there is less distraction from international [investments], that there’s more focus on the U.S., and that we have chosen to continue to align ourselves with institutional investors,” Toomey said in the Nov. 16 interview.

Amstar Group, which is now led by former Black Walnut Capital managing principal Joseph Zuber, was originally formed in 1987 to manage the real estate allocation of Happel and expanded its remit to raise commingled funds for U.S. and European emerging market investments in countries such as Poland, Ukraine, Turkey, and Russia.

Amstar Advisers was founded in December 2010 by Finke when Happel began reducing “the level of real estate investments” by Amstar entities, according to the lawsuits. It has since raised two $200M discretionary joint ventures with San Diego County Employees Retirement Association and Oregon Public Employees Retirement Fund. SDCERA declined to comment; OPERF did not return requests for comment.

The lawsuits are set to be heard in Denver County District Court through December and January, 2016.

The post ‘Messy Divorce’ for Amstar and Billionaire Founder appeared first on PrivcapRE.

Commercial real estate will not lose momentum in the wake of the Federal Reserve’s increase in interest rates. Indeed, industry veterans argue it’s vital to focus on the long term, and on the declining 10-year Treasury rates.

In a long-anticipated move, the Federal Reserve last week raised interest rates for the first time since June 2006—a watershed decision that sets the global economy on a new course, one that’s likely to lead to more positive returns for U.S. real estate.

Christopher Macke, American Realty Advisors

While commercial real estate investment managers and institutional investors will see little immediate impact from the quarter-point increase in the federal funds rate, the hike expressed the Fed’s confidence that the U.S. economy, while not booming, is strong enough to withstand—and justify—higher borrowing costs. That bodes well for property markets.

“Real estate is in a ‘Goldilocks’ environment,” says Christopher Macke, managing director of research and strategy at American Realty Advisors.

First, he says, there’s some volatility in financial markets: “Not enough that it scares away investors, but enough that investors value the relative stability of real estate.” Second, “we’re still in a low-yield environment, and real estate can deliver a healthy premium to fixed-income alternatives.”

That premium, he continues, “will provide future support for real estate pricing and, specifically, cap rates.” Macke notes that while commercial real estate might be enjoying a “Goldilocks” moment, all good stories come to an end, and investors can’t be complacent.

How long real estate can maintain that relative attractiveness is a major question, and last week’s decision clears the way for a clear-eyed assessment. “Now that the Fed has finally done the first hike, we can focus on what really matters, and that’s the longer-term arc of the increase,” Macke says, noting that future increases should happen gradually.

But he argues that it’s essential for investors to differentiate between short-term rates and the 10-year Treasury rate—the key benchmark for real estate financing that declined in the run-up to last week. Macke notes that the prior three times the Fed raised interest rates, the 10-year Treasury rate increased at one-third the pace of increases in short-term rates.

Slower global economic growth will also naturally limit the pace of future U.S. rate increases. “It’s like the Fed is in a canoe with three other people who are all paddling in the opposite direction,” he says.

Spencer Levy, CBRE Group

Central banks in the European Union, Japan, and China are easing monetary policy to boost their economies, and increasingly divergent central bank policies are likely to cause the canoe to become unstable.

In fact, the U.S. dollar’s strength and steady economic growth are already attracting capital into U.S. real estate, providing a major source of support for prices while keeping cap rates in a downtrend. That reflects an increasing preference for lower risk and safe haven assets, not least in the U.S., Macke says, a trend that’s set to accelerate in 2016.

And while future interest rate hikes are expected, there’s “significantly more room to move before we begin to see real pressure on cap rates,” says Spencer Levy, head of research for the Americas at CBRE Group.

“Certain markets may be more susceptible than others to interest rate increases,” he says. But overall “the flow of international funds, combined with domestic pension funds’ large pools of capital allocated to commercial real estate but unspent, will outweigh any potential increase in the cost of capital.”

The post In Interest Rate Hike, Focus on the Long Term appeared first on PrivcapRE.

For institutional investors like pension funds that are looking for long-term holds on a large amount of capital, infrastructure is a great place to invest, say two experts representing Aviva Investors and Alberta Investment Management Corporation.

The post Why Some LPs Look to Infra for Long-term Holds appeared first on PrivcapRE.

Scorecarding your property manager could add real basis points to your total return. However, the real estate industry is lagging when it comes to adopting a data-driven property manager scorecard, say TIAA-CREF and RealFoundations.

As an industry, private real estate often seems antiquated in terms of process, metrics, and management solutions. That’s why there is little surprise that managers have been slow to adopt a data-driven property manager scorecard approach, despite the impact it can have on asset performance.

Scorecarding property managers gives owners a better grasp on how operators are performing on their behalf and identifies how to attack the problem when they aren’t performing well, says Chris Williams, director of the consulting firm RealFoundations.

Paul Rozelle, TIAA-CREF

Property manager scorecards measure asset-level operations based on a standardized set of key performance indicators (KPIs) that go hand in hand with comprehensive governance standards.

While the concept appears simple at a high level, it can be challenging to implement in an industry where most asset managers do not make use of the practice. This is further compounded by operating partners who often lack consistent reporting methodologies and often resort to simple Excel spreadsheets to capture a plethora of data.

“We are no longer just investing our own capital but growing into a world-class global asset manager,” says Paul Rozelle, managing director of private and alternative operations services at TIAA-CREF, a firm that manages $89B in global real estate assets. “So we asked, what do we have to do to make that leap? We have 36 different property management firms and over 200 individuals handling our properties, so getting them to act in alignment to ensure consistent data and performance within our system was critical.”

Williams advises that the first step in developing a scorecarding system is defining the universe of KPIs. “It’s most important to understand the things you want to measure,” says Williams, “asking what you want to hold your property managers accountable for and getting each definition assigned.”

Providing further insight into the TIAA-CREF program, Craig Lord, director of property management governance at the firm, explains: “We score using 18 metrics. The main categories are financial, accounting, and operational.”

Craig Lord, TIAA-CREF

The goal, he says, is to have data capture that runs the gamut from areas such as capital expenditure tracking and financial reporting to more specific examinations, such as sustainability practices and tenant satisfaction.

The team then bakes a comprehensive communications plan into the process. “The key is to have communications where asset managers, sustainable directors, accounting, Yardi support—all of these parties are [regularly] gathered and we continue to give ongoing instruction and feedback,” says Lord.   

After seven years of running the program, the results appear compelling. “Although not causative, we have determined a strong direct correlation showing that, in a 100-point system, for every 1 percent score increase, it adds on average between 12 to 19 basis points to total return for investment, varying by property type,” says Rozelle. “It also reduces operational, reputational, and insurance risks.”

While the program is still in its formative stages industry-wide, Rozelle hopes for greater adoption of scorecarding. “As we sit across from investors who seek to put money with us, it’s a differentiator. It adds credibility to [the asset class], and it would benefit the entire industry if it were more broadly applied.”

The post How Property Manager Scorecards Boost Returns appeared first on PrivcapRE.

The departing head of Franklin Templeton’s real assets multimanager group, Jack Foster, talks about the outlook for real estate GPs and multimanagers after leaving the firm this month.

Jack Foster, the man who created Franklin Templeton’s real assets multi-manager business and REITs platform and is departing the firm this month, says it’s getting “harder and harder” for fund-of-funds shops to succeed.

As institutional investors increasingly look to reduce the volume of manager relationships they have and commit larger checks to fewer GPs, Foster says the multimanager space will become even more challenging.

However, the former Franklin Templeton Real Asset Advisors head says there could be a silver lining for multimanagers—the defined-contribution pension world.

Jack Foster, Franklin Templeton

As DC plans slowly embrace private real estate within their portfolios, multimanager operations could come to their aid. “There’s always going to be space for excellent fund-of-funds businesses in real estate, and frankly we may see a re-emergence of the model across real estate, private equity, and hedge funds as alternatives are increasingly accepted by DC plans,” says Foster. “I do see the space becoming successful again in a DC world.

“Defined contribution plans don’t [currently] lend themselves to private funds,” he adds, noting the need for daily valuations and a dislike of illiquidity. “They need help picking real estate funds.”

Foster is leaving Franklin Templeton after almost 30 years, during which time he built the firm’s Real Asset Advisors fund-of-funds platform and established the Global Real Estate Securities group. “Franklin is a wonderful place, and I’ll never forget my time there, but I’m really excited about what I see out there,” he says.

Foster notes several trends in the real estate investment management business, not least the move by GPs to diversify their revenue by expanding into core, and the challenge of sharing economics between core acquisition teams and those on the value-added and opportunistic side, who typically get paid more.

But he says real estate remains fundamentally attractive today compared to other asset classes, thanks to its “relative inefficiency. It doesn’t move [in value] every day like stocks and bonds, and there’s no other asset class where a transaction fails because the seller doesn’t like the buyer. That happens a lot in real estate, and those frictions create unique opportunities.”

With new supply largely below historic averages, Foster says LPs should continue to “allocate to real estate but ask themselves the question: Which point in the cycle do you not want to get in at? It’s not an easy question for investors to answer, because it depends on the returns they’re looking for, but you can still find places to invest today that make a lot of sense.”

The post Fund-of-funds Thrive on DC Cash appeared first on PrivcapRE.

Reforms of U.S. partnership audit laws will transform the audit landscape for private equity and real estate LPs and GPs—and require that every partnership agreement be rewritten. Don Susswein, principal in the Washington Tax Office of RSM, talks about the practical implications of the easing of partnership audit rules, why the Internal Revenue Service has been dared to step up its audit game, and how current investors could be making tax liability decisions for former investors.

The post Why RE Partnerships Need to be Rewritten appeared first on PrivcapRE.

With more than $221B of real estate dry powder and U.S. investors questioning how to position their portfolios for late-cycle investing, private equity real estate fundraising in 2016 could be on track to slow.

Private equity real estate GPs should brace themselves for a pullback in fresh allocations in 2016, thanks to the overhang of dry powder and maturing portfolios.

Distributions to LPs in 2015 are expected to reach all-time highs of more than $187B, but Lori Campana, a partner at the Boston-based placement agent Monument Group, expects fundraising for commingled funds to slow slightly in the next 12 months as investors—and managers—become more cautious in their investments.

Lori Campana, Monument Group

There was more than $221B of dry powder sitting uncalled in private equity real estate funds as of the end of November 2015, according to Preqin, thanks in part to a strong fundraising environment, with more than $96B raised in 2015.

However, Campana says a slowdown is inevitable for managers targeting a fund close in 2016. “There is such an overhang of dry powder facing managers, even though we had some of the most active drawn–down activity we’ve seen for a while in the second half of the year,” she says.

Part of the challenge is balancing “compelling” opportunities in the current cycle, she says, against the limited liquidity within their mature portfolios.

Asian investors, however, could represent a bright spot in the fundraising landscape and could offset any pullback from U.S. and European investors, says Campana. “Cross-border capital is definitely here to stay, and Asia is undoubtedly one of the most important fundraising markets to be in today.”

While most investors in Asia have traditionally targeted separate account or club deal structures, Asian LPs are becoming much more sophisticated and diverse in how they invest globally.

Campana adds that fundraising in the region is a long-term relationship. “You don’t meet an investor in Asia and come back with a check after one visit. You meet them many times, and you meet the hierarchy within their organization. It’s a long relationship-building and educational process,” she says. “It’s a lot of baby steps and requires patience and flexibility.”

One fundraising trend that is set to continue in 2016, Campana predicts, is the bifurcation between the “haves and have-nots,” In 2015, the top five real estate fundraises accounted for more than a third of the total equity dollars raised, with Blackstone Group raising $15.8B for its eighth opportunity fund and Lone Star raising $5.8B for its Fund IV.

Monument Group assisted Beacon Capital Partners garner $1.4B for its Strategic Partners VII fund in 2015. Campana says LPs are increasingly looking to value-add strategies across sectors but are also emphasizing the importance of pre-specified portfolios from GPs.

“It’s always been part of the format, but in a mature market you need to differentiate yourself, and pre-specified assets give you a competitive advantage,” she says. Beacon Capital’s fund was approximately 25 percent pre-specified during its fundraising, and the ability to demonstrate such “access to deals was tremendously helpful.

“The difficulty for any manager is, how do you turn those pre-specified deals into closed deals without abundant closed capital?,” asks Campana. “It’s about a strong and trusted reputation and getting early investors excited to commit to the fund and provide co-investment capital.”

The post Will Fundraising Slow Down in 2016? appeared first on PrivcapRE.

Chinese capital inflows to U.S. commercial real estate may slow, but it’s all part of the typical ebb and flow of foreign capital.

Fears may be rising that Chinese investors could start pulling back their investments in U.S. commercial real estate, but that’s not going to impact the sheer weight of cross-border capital targeting the asset class, according to leading LPs in the space.

Jeff Blau, CEO of Related Companies, said last week at the ULI Real Estate Outlook 2016 event in New York that after a recent trip to mainland China, he realized it was time to “be looking for other places for capital. [Chinese investment] will slow down by government mandate.”

Sean Bannon, Zurich Alternative Asset Management

Yet many institutional investors argue there’s been a permanent shift in cross-border capital flows targeting U.S. commercial real estate, and any slowdown in Chinese capital inflows is merely part of the ebb and flow of real estate capital markets.

“These are fundamental long-term investors,” Tom Arnold, head of Americas real estate at Abu Dhabi Investment Authority, said during the same ULI conference. “That doesn’t mean you are not going to see rebalancing in portfolios…It will ebb and flow.”

Zurich Asset Management’s Sean Bannon echoed a similar comment on PrivcapRE in 2015 when he said there was “every reason to believe [foreign capital targeting the U.S. was] more permanent capital.

“A lot of the new entrants aren’t just sending money, they’re sending people over,” said Bannon, who leads Zurich’s $2.5B U.S. real estate program. “They’re hiring people. They’re building out infrastructure, which would suggest that they’re committed to the space.” Watch my interview with Bannon here.

And as Dan Neidich, CEO of Dune Real Estate Partners, said at Privcap’s inaugural Real Estate Game Change conference in November: “Capital flows have been global for a long time.”

“Everyone has a little bit of a short memory—even the people who pull back—so there’s always an ebb and flow,” Neidich said. “All of us remember when the Japanese were here. Now it’s the Chinese or the Koreans, and [investors from] the Middle East have been here for a long time. The German banks are starting to look at coming back to the U.S. Even the Japanese are coming back to the U.S.”

The post The Reason China’s Slowdown Won’t Kill U.S. Real Estate appeared first on PrivcapRE.

With just 12 percent of all capital raised in funds going to emerging managers in 2015—the lowest proportion since 2007—real estate operators should consider structures beyond the commingled blind pool when raising LP capital.

Real estate operators eyeing the institutional investment management world often assume they have a black and white decision to make: raise a commingled fund or bow out, with no gray area in between. That thinking can be a mistake, according to the multimanager group Belay Investment Group.

Eliza Bailey says operators looking to break through into the real estate investment management business should consider all structuring options, and not just focus on the traditional commingled blind pool.

Eliza Bailey, Belay Investment Group

“Many believe that in order to enter the market they have to ‘go big or go home’ and get a commingled fund to attract institutional investor interest when, in reality, this model has become less and less popular for many institutional investors,” she says.

With just 12 percent of all capital raised for commingled funds in the year up to October 2015 going to emerging managers—the lowest proportion since 2007 and down from a peak of 32 percent in 2011, according to data provider Preqin—fundraising for first- and second-time fund managers continues to be daunting.

Instead, Bailey recommends operators consider partnering with larger, more experienced allocators, which can also ease the burden of building back office and reporting functions from scratch—an important issue when raising LP capital that’s regularly overlooked by emerging managers, Bailey and Larissa Herzceg, managing partner and CIO of multimanager Oak Street Real Estate Capital, say in an interview with PrivcapRE released this week.

Larissa Herczeg, Oak Street Real Estate

Programmatic joint ventures are also another route to help kick-start institutional relationships on a deal-by-deal basis, although—as Herczeg concedes—in a competitive U.S. market “having discretion over capital is a competitive advantage when sourcing deals.

“Operators need to think long and hard about their specific skill sets, their business goals and objectives and evaluate the best structure for their firms,” says Herczeg. “Once again, there isn’t a right answer.”

The post Mistakes Emerging Managers Make With Commingled Funds appeared first on PrivcapRE.

A true secondaries market, with broker-dealers facilitating the buying and selling of private equity real estate fund and JV interests, is needed to help LPs take greater control over their portfolios.

Investors will continue to suffer from a lack of control and greater volatility in the asset class without the introduction of financial intermediaries able to help create a true secondaries market for fund and JV interests, Jim Valente, head of real estate at MSCI, told PrivcapRE in a recent interview.

“I think [the development of a secondaries market] is an opportunity for investors,” he says, dismissing suggestions that Blackstone’s $3B acquisition of real estate fund interests from the California Public Employees’ Retirement System or large fundraises for dedicated real estate secondaries funds was evidence of a market.

“That’s different than having an actual market where there’s buyers and sellers of shares of funds…[where] you have broker-dealer type agents that create markets and people can get in and out of positions [saying to their broker-dealer] I may want $200M of this, or I want to sell $100M of this or $50M of that type of interest,” says Valente.

You can view a clip here:

You can watch the full video or download the transcript here, in which Valente delves more into what a true real estate secondaries market needs

The post The Missing Ingredient to a ‘True’ RE Secondaries Market appeared first on PrivcapRE.

LPs wanting to take greater control over their real estate portfolios should support the creation of a true secondaries market with broker–dealer agents able to help buy and sell fund, and with JV interests akin to the derivatives industry. Jim Valente, head of real estate at MSCI, says the private real estate investment industry is still lagging in developing a genuine secondaries market, despite high–profile fundraises and deals, not least Blackstone’s $3B acquisition of 43 fund interests from the California Public Employees’ Retirement System in November 2015.

The post Why RE Needs a True Secondaries Market appeared first on PrivcapRE.

The recently passed FIRPTA reforms have a major impact on foreign investors in U.S. real estate. Experts from AFIRE and Wafra discuss.

The reforms to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) were passed on Dec. 18, 2015, and will have a major impact on foreign investors in U.S. real estate. Investors can now have sole ownership of U.S. property and own 10 percent of a REIT—twice the previously allotted amount. And foreign pension funds are now exempt from FIRPTA.

According to the 24^th annual survey from AFIRE—the Association of Foreign Investors in Real Estate—64 percent of the members plan on a major or modest investment increase in 2016, and no one is planning to decrease their investment activity. “It’s the first time that there’s never been anybody [saying] ‘We’re not going to do a measured decrease in our portfolio,’” says Jim Fetgatter, chief executive of AFIRE.

He adds that it makes deal structuring easier for foreign investors. They’ll no longer have to work around FIRPTA sanctions, which was previously a significant barrier.

You can watch a clip here:

Watch the full video or download the transcript here, in which Fetgatter and Frank Lively of Wafra Investment Advisory Group also discuss concerns about rising interest rates, growth within the wider U.S. economy, and how pricing of properties could dampen the appetite of foreign investors in the medium-term.

The post Where FIRPTA Reforms Will Hurt Most appeared first on PrivcapRE.

Foreign investors continue to see U.S. real estate as the best place globally to invest their equity, however it’s a cautionary tale, says Wafra’s Frank Lively in a discussion with AFIRE’s Jim Fetgatter.  Talking about AFIRE’s 24th investor survey, which once again shows the U.S. as the number one destination for foreign investors, Lively and Fetgatter also focus on reforms to the U.S. FIRPTA legislation, which could pave the way for more cross–border capital coming into U.S. commercial real estate in 2016 and have put LPs “on notice” to rethink their real estate allocations. However, Lively and Fetgatter note also that concerns about rising interest rates, growth within the wider U.S. economy and pricing of properties could dampen appetite in the medium–term.

The post Gauging Foreign LP Appetite for U.S. CRE appeared first on PrivcapRE.

Chinese insurer Anbang Insurance Group has made waves offering $13B to take over Starwood Hotels, just hours after spending $6.5B on Blackstone’s Strategic Hotels. The group’s ambitions are not just to be a real estate powerhouse though—they want to be a global force to be reckoned with.

Insurance companies are conservative, patient capital that look for safety in low-return investments.

In other words, they’re boring.

Not so Chinese insurer Anbang Insurance Group. The insurance company hit world headlines this week offering to pay $12.8B for Starwood Hotels to break up the hotel operator’s pending sale to Marriott International. That offer came just hours after spending $6.5B to acquire Blackstone Group’s 16-property Strategic Hotels portfolio.

The two deals, though, are not what’s most interesting about Anbang. It’s the sheer scale of its ambitions, which extend well beyond the world of commercial real estate.

Anbang chairman Wu Xiaohui and Blackstone Group chairman Stephen Schwarzman at the Harvard University recruitment event, March 2015. Source: Anbang Insurance

“I hope that Anbang would have a global footprint, and that its influence will extend to every corner in the world,” said Anbang chairman Wu Xiaohui at a Harvard University event in March 2015. Indeed, Xiaohui—who said the air miles traveled by his investment team were equal to a round-trip to the Moon—said by the end of 2026, “Anbang’s asset scale will exceed your imagination.”

In the speech Xiaohui talked about Anbang being a global leader in internet banking and finance; financial management; building a global hospital franchise; life sciences; real estate; senior care; transportation; infrastructure; automobiles and energy.

“[Anbang] will be a global holding company with subsidiaries listed on many stock exchanges…we’ll acquire many listed companies from all over the world. We will also get listed all over the world, including Hong Kong, China and Europe. We must understand the Chinese capital markets, but we will also certainly come to [the] U.S. capital markets.”

If this is just the beginning for Anbang, just think what 2016 holds. After all, Anbang spent more than $8B in deals in 2015 alone, including:

• $1.95B on New York’s Waldorf Astoria hotel
• $714M for a four-office portfolio from Ivanhoe Cambridge
• 13 trillion won ($934 million) for South Korea’s Tongyang Life Insurance Co
• HK$3.3 billion ($420 million) to increase its stake in Chinese developer Sino-Ocean Land Holdings Ltd;
• $414M to buy the Merrill Lynch Financial Center office building in New York from Blackstone (for a reported 3.7 percent cap rate)
• $1.57B on U.S. life insurer Fidelity & Guaranty Life;
• $1.14B to buy and recapitalize Dutch insurer VIVAT
• €206M to acquirethe Belgian subsidiary of bank, Delta Lloyd Group.

Read the full transcript of Xiaohui’s Harvard speech to get insights into the insurance’s company’s investment; it’s corporate culture of “water, family and internet” and his description of Blackstone global head of real estate Jonathan Gray: “Like a checkbook. As soon as a check’s written, you can count on cashing it.”

The post How Anbang Will Take Over the World appeared first on PrivcapRE.

Fund managers and lenders are increasingly focused on the growth of cities thanks to demographic and urbanizations forces. But are they missing a trick in the suburbs?

The future of real estate is in the city. At least, that’s what everyone tells you.

We are repeatedly told to look to the global megatrends taking place—urbanization, demographics, the rising middle class, technology—and realize how the city is the only, true future-proof option for real estate investment strategies.

It’s what fund manager TH Real Estate concluded this week as it unveiled a list of 42 cities it argues are “future-proof” enough for its €5B open-ended European cities fund; it’s what ING Finance is focused on as it re-launches its U.S. lending platform [catch the upcoming interview with Michael Shields on PrivcapRE]; and it’s what GPs globally are constantly talking about as they pitch their strategies to investors.

And it’s the truth. You cannot deny the fact that urbanization—probably the most powerful structural force in real estate today—is growing, with 66 percent of the world’s population expected to live in urban areas by 2050, up from 30 percent in 1950.

Add to that force the fallout from demographics with its urban-seeking, experience-hungry millennials and baby boomers plus technology, which is transforming our very understanding of real estate space, and it makes the cities argument even more compelling.

Yet, I beg to differ.

By stressing the fundamental importance of the city in real estate investment strategy, we are also undermining the value presented by suburbia.

The Gen-X in me argues that cities are great places to live, work and play—to a point.

When a generation starts getting married, having children, needing good public schools, affordable housing, the ability to save for a child’s college fund, let alone retirement, cities often fail to deliver forcing many to retreat to the suburbs.

And the millennials, the largest cohort in U.S. history, which is shaping so much of the decision-making behind multifamily, office, retail, industrial and hospitality construction and redevelopment, aren’t deviating from these life choices. They’re merely delaying them.

So while cities will undoubtedly be where the bulk of real estate investment dollars are invested now and in the future, just as they have dominated transaction volume in the past, suburbia will remain a reality for many people and therefore a true investment opportunity for the real estate asset class.

The post The Future of Real Estate: the City or the Suburb? appeared first on PrivcapRE.

There’s a gender pay gap between men and women within U.S. commercial real estate and just a small percentage of women aspire to join the C-suite compared to men. The latter raises significant questions for trying to close gender inequality in the asset class.

Few people will be surprised to learn there’s a gender pay gap in U.S. commercial real estate, with men making 23 percent more than women.

At the very highest-levels of real estate—those in the C-suite earning more than $1M a year—men are taking home more than double the compensation of women, according to the latest benchmark report from the CREW Network.

Despite advances in closing the compensation gap over the past decade, there’s still plenty of room for improvement when it comes to pay equality. That’s highlighted by CREW in their benchmark report, which brings together 10 years of research tracking compensation and career achievement in real estate by gender.

But what may surprise people in reading this comprehensive report is the findings on women’s career aspirations: Just 28 percent of women in commercial real estate aspire to join the C-suite compared to 40 percent of men.

According to the report, 47 percent of the 1,700 women surveyed choose senior vice president or partner as the position they aspired to be in at the peak of their career, against 39 percent for the 482 men questioned.

So, why are women not aspiring to climb as high up the commercial real estate career ladder as men?

Part of that answer is undoubtedly the pressure of having children midway through building a career. The CREW report reveals that 20 percent of women believe family has adversely affected their career or compensation, compared to just 8 percent of men.

However, the report also found a lack of company mentors and sponsors as a woman’s number one barrier to success, compared to a man’s top reason: a lack of undergraduate degree.

The importance of mentors is an idea supported by MaryAnne Gilmartin, president and CEO of development firm Forest City Ratner Companies, who argued in an interview with PrivcapRE that as women climbed the “pecking order” of commercial real estate, they were becoming role models for the next generation.

“We should focus on the fact that we are the future, as are many of the young people who are looking to be mentored. We are the ones who will pave the way and create the C-suite impact that’s necessary for real change to take place.”

Watch a clip of the interview, also featuring Susan Swanezy, partner of Hodes Weill & Associates and Paula Schaefer, WX New York Women Executives in Real Estate here:

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Cities are in danger of suffocating from increased density unless real estate investors, developers and politicians start thinking differently about how to improve quality of life, according to one architect. Joe Brancato, regional managing principal of the world–renowned architecture firm Gensler, warns that planners and owners have to start thinking about the “horizontal plane” of cities around the world as they become more and more crowded. He suggests that can be done by transforming underutilized space and buildings into parks, and entertainment and sports areas.

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Speaking the language of LPs, communication skills and transparency are among the weapons emerging managers need to have in their arsenal.

For emerging investment management teams, corralling institutional capital is seen as the pinnacle of success. And successfully tapping larger pools of capital and big ticket deals requires a complete shift in mindset. Suzanne West, managing principal of emerging manager specialist Belay Investment Group, breaks this mindset shift into seven steps:

1. Lead with Your Track Record – There really is no common gathering point for operating partners (OPs) and institutional capital to connect and grow relationships, says West, and it takes time learning how to communicate and work with one another.

“The biggest problem I’ve seen is that when OPs do connect with institutional investors [oftentimes] the meetings fail,” she says. “OPs might have talent, track record, access to compelling deals, and be market entrenched, but they may not have had experience with institutional relationships before and don’t understand how to present themselves in a way that resonates with their audience.”

One tip for overcoming this problem is providing LPs with a full track record, with internal rates of return and cash flow multiples for historical deals, before a first meeting. West says that track record is often used by LPs as an initial screening tool, but it’s usually information OPs don’t put together in advance.

2. Understand Your Duty to Investors – In working with institutional investors, OPs are exposed to a different set of expectations and reporting requirements compared to “friends and family” capital. “If you now have a $100M pool of equity with an institutional partner, you are faced with a very different set of fiduciary expectations and emerging managers need to accept that it’s no longer their capital [and they cannot] make decisions in a vacuum,” says West.  “An operator that is a strong fiduciary puts the institutional partner’s interests first. Surprisingly, many operators don’t have that in their DNA.”

Suzanne West, Belay Investment Group

3. Gain Experience with JVs – Post-financial-crisis, institutional investors want control and the ability to “turn off the spigot” when strategies are no longer viable or there are problems with the partnership.

“The challenge is bridging the gap where investors want tactical control of capital with discretion and OPs see competitive advantages to being nimble [and having full discretion over LP capital]. In the end, most OPs are okay ceding discretion as long as they have adequate flexibility to make decisions that are in the best interest of the real estate assets they are managing,” says West. Given these conflicting desires, creating alignment can be a delicate procedure.

West suggests emerging managers consider programmatic joint ventures and one-off joint ventures with LPs or allocator funds to stay active in the markets while building an institutional track record. This transition phase helps an emerging team get on an institution’s radar while gaining experience building a working relationship and understanding of LP communication, reporting and risk-management requirements.

4. Build an Organization for Transparency – LPs will expect levels of transparency that many smaller fund groups and OPs may never have been subjected to in the past, says West. “As an investor, I want to know what’s going on with my assets real time and what decisions my partner is making that impacts the performance. Many operators aren’t accustomed to being so transparent, never having had to answer to outsiders or justify their decisions.”

5. Demonstrate your Adaptability & Foresight – Investors value partners who remain focused on their investments, are quick to acknowledge when an intended strategy is no longer viable, and are experienced enough to formulate an alternative solution, says West.

“Some teams are so dogmatic they don’t step back and say ‘I need to come up with a plan B in the event things aren’t working,’” explains West. “It’s important to make [a backup plan] before its too late.” In formulating a plan B, investors often develop a greater sense of trust in you as a fiduciary partner.

6. Communicate Problems Before LPs Ask – When real estate performance falters—whether due to market downturns or property-specific circumstances—many managers are reluctant to report the situation or admit mistakes. “GPs generally wait too long to acknowledge underperformance, whether they are at fault or not,” says West. “The worst thing they could do is bury their head in the sand and hope that circumstances change.”

The fear among GPs is that investors will fire them or their relationship with the LP goes sour, says West. “In fact, the opposite is often true. However, they will lose credibility with their investor [by not communicating early] and that’s hard to gain back.”

7. Nurture Relationships for the Long-Term – While it’s challenging to build successful working relationships with LPs, once a relationship is established, a bond is formed and investors will likely stick with an investment team through good times and bad. As West bluntly puts it: “Your investor relationship is sacred, and you really have to screw up to lose it since it’s not always just about the return numbers on a page, but your credibility as a partner.”

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It’s a bold prediction with big implications for private equity: real assets will increase from roughly 10 percent to 25 percent of institutional allocations over the next decade.

That’s the view of Joe Azelby, global head of J.P. Morgan’s real asset investment group, a perspective he shared during a recent MSCI private client event in New York.

“I think we’re moving into a new place around the concept of real assets,” Azelby said. “It’s a new ‘omnibus’ asset class.”

Given historically low bond yields, institutional investors will need to think beyond real estate, with its boom and busts, for income and inflation protection, Azelby said. The solution is to invest in assets such as timber, regulated utilities, and shipping, which share some fundamental characteristics with real estate, but have uncorrelated performance.

“Every 10 years, real estate punches you in the face,” he said. “It’s cyclical, and if it’s levered and if it’s levered a lot, it can be a painful experience.”

So investors should consider real estate just one part of a broader real asset portfolio, and understand that real estate and TIPS aren’t the only way to protect against inflation.

“Real assets give you inflation protection at no cost,” Azelby said. “It’s like free life insurance.”

Increasing allocation to real assets would come at the expense of fixed income and equities, which Azelby defines broadly to include both public and private equity. So while many PE shops have diversified into real asset investing, those that haven’t risk losing out.

For Azelby’s full perspective and supporting documents, here’s the full slide presentation:

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The North Carolina Department of State Treasurer is just one of the many LPs to ease its asset allocation targets as it looks to become more flexible in an era of low returns.

U.S. pension funds are exerting much greater control over their private market portfolios, but control isn’t just coming through GP selection or veto rights—it’s increasingly coming through more flexible asset allocation policies.

North Carolina Department of State Treasurer is in the final stages of relaxing its maximum allocations for alternative asset classes in a bid to “improve investment returns and risk management…in light of expected low investment returns for the next decade,” according to a state pension investment committee memo.

The move, which was approved by the pension investment committee on April 19, and needs to be passed by the state legislature and signed into law, would see the maximum allocations for private equity, real estate, opportunistic credit, inflation-sensitive investments, and equity hedge funds rise to 15 percent.

To be clear,

In relaxing its maximum allocations, though, the $84M North Carolina Retirement System isn’t declaring a massive buying spree for alternatives. The fund isn’t planning to change its target allocations—it is simply giving itself more discretion over how far over those allocations it will be allowed to go.

And this strategy is precisely what many U.S. pensions are employing as they look to protect their beneficiaries’ benefits for the next decade and beyond.

During our Real Estate Game Change conference in Chicago last fall, the real asset portfolio managers for both UPS Investment Trust and Exelon Corporation described how the plans had both adopted more flexible target allocation ranges to provide “dynamic” control over investments.

Judy McMahon, UPS

“We don’t have an annual allocation that says you have to put out X number of dollars,” said Judy McMahon of UPS at the conference. “I might be looking at something that generates a 10 percent return, and our PE team is looking at something that generates that, and we allocate to the best risk-adjusted return. That helps us construct our portfolio to be ready for the changes that will be coming.”

Drew Ierardi of Exelon agreed. “We don’t get a [minimum allocation] handed down to us from our investment committee; we manage it more dynamically.” Exelon, Ierardi said, worked within a range of 4 to 9 percent allocation, with a target of 6 percent, for real estate.

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