What’s the most compelling real estate investment strategy today? Core, value-add or opportunistic? I believe that the most appropriate strategy available today is to seek out the fundamentally distressed asset that would otherwise be classified as core and restore it to that condition. Restore the core, in other words.
One of the most common refrains in the commercial real estate industry today relates to the approach by commercial banks toward their underperforming loans. We constantly hear pundits and other market experts speaking derisively of the “extend and pretend” strategy and its deleterious effects on the banking system and overall market. Implied is the assumption that these lenders are either unaware or unwilling to accept their problems and that this is impairing credit flows that would be restored if they only faced up to and acknowledged reality. We view this as both overly simplistic and considerably flawed and instead see a highly rational and fiscally responsible approach.
The $95.2 billion Teacher Retirement System of Texas (TRS) is a relative newcomer to the real estate asset class, but in a little more than five years it has quickly grown its portfolio and become one of the industry’s most active investors. Larry Gray,editor of The Institutional Real Estate Letter – North America recently spoke with Eric Lang,managing director, real assets, at TRS, to discuss the pension fund’s investment program.
There’s lots of talk about the “new normal,” regarding the economy, the financial markets and even the real estate market. Some say a higher level of unemployment and slower economic growth will be “normal.” More volatility and less confidence in the public equity markets will be “normal.” The expanded role of government and increasing regulation in the U.S. financial markets will be “normal.”
In the wake of losses suffered during the economic decline, many U.S. pension funds are predictably looking to reduce risks in their real estate investment programs by reducing leverage across the risk-profile spectrum and increasing commitments to core-style investment vehicles at the expense of more tactical investments. However, as plan sponsors don’t want to miss out on potentially lucrative down-cycle investment opportunities, many also are increasing allocations to the real estate asset class.
Industrial real estate houses the often invisible industries critical to the efficient operations of the U.S. economy. Large, single-tenant distribution centers are very visible, and their functions are fairly easy to understand. A case in point is Williams-Sonoma’s newly leased, 1.3 million-square-foot distribution center seen by millions of drivers on the New Jersey Turnpike.