San Francisco, travel destination

SanFranciscoSkylineThe City by the Bay is a lovely place to visit. (Though I do not recommend the typically fog-bound July weather; come in September, when the sun will be shining.) The fair city, with its museums and shopping, neighborhoods and nightlife, is popular with tourists from around the globe.

And hotel investors have a pretty favorable view of San Francisco, as well.

According to the latest JLL Hotel Investor Sentiment Survey, investors in the Americas have the most favorable view on San Francisco for both the next six months and the next two years. (Other favorable markets include Houston and Miami in the next six months, and the Caribbean, Los Angeles and Boston in the next two years.) In addition, San Francisco has the highest development intentions (along with Boston and New York City).

Investors also expect hotel cap rates to trend downward during the next six months — and it should be no surprise that investors expect cap rates in San Francisco to be among the lowest.

So, if you’re going to San Francisco, be sure to bring plenty of investment dollars.

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LorettawebfinalLoretta Clodfelter is production and copy editor of Institutional Real Estate, Inc.

The promise of 3D printing

Reshaping our thinking about how things can and should be done, the real estate industry is one of many seeking to take advantage of all the promise 3D printing has to offer.

Take, for instance, the planned construction of one home in Amsterdam. Rather than being built by hand, the 20-foot by 20-foot 3D Print Canal House will be “printed into existence” from a digital model, reports the Urban Land Institute. Layer upon layer of melted plastic material will comprise the prototype home — consisting of 13 printed rooms — which will be on display for three years and undergo transformations as the world of 3D printing evolves. The project already has garnered a visit from U.S. President Barack Obama, as well as from developers and real estate bankers.

Some of the goals of 3D printing in home construction include:

  • Shorter, more efficient production time
  • Greater ability to address urbanization and disaster-relief housing needs
  • Recycling waste materials into print materials
  • Eliminating transportation costs
  • Personalized architecture
  • Home mobility

Even in the electronics space, 3D printing has the potential to transform what’s available at neighborhood convenience stores, such as made-to-order customizable cell phones, according to Pippa Malmgren, founder of DRPM Group, who explained the effect 3D printing will have on the built environment at the 2014 ULI Europe Annual Conference.

It’s what’s on the inside that counts

And don’t forget to decorate. Plastic is far from the only material that can be used in the 3D printing of homes and building interiors. Emerging Objects is currently designing interiors for 3D Printed House 1.0 for the Jin Hai Lake Resort in Beijing. Not only is the house a cross between traditional construction methods and 3D printing, but it utilizes renewable and innovative materials to create 3D-printed interior bricks and tiles made out of items such as salt and a unique cement polymer. One material, saltygloo, is being used for the interior walls. It combines harvested salt with glue, resulting in a strong, waterproof, lightweight, translucent and inexpensive product.

Setting the above project apart from others covered by is its reliance on 3D printer farms with printers of many shapes and sizes. “A printer farm insures constant production of manageable building components to make large assemblies, whereas if one large machine breaks, all production stops until repairs are made,” Ronald Rael, CEO of Emerging Objects, told in a recent article about the house.

The promise of 3D printing provides much for institutional real estate investors and their tenants to consider. Office space, for example, could be customized for tenants as their workforce needs change in light of telecommuting and potential desires to create more open floor plans for greater collaboration. And sustainability practices could be encouraged through the use of recyclable and renewable resources in 3D printing techniques.

What benefits — or problems — do you see 3D printing bringing to the real estate industry in the years to come?

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Jennifer-Molloy91x119Jennifer Molloy is editor of The Institutional Real Estate Letter – Asia Pacific.

The 50 shades of infrastructure investing

I’ve heard several times at our Institutional Investing in Infrastructure conference — including at this year’s event earlier this month — representatives of the California Public Employees’ Retirement System describe infrastructure as a “bespoke” asset class, meaning each infrastructure asset and investment is unique and not easily homogenized into neat and tidy sectors and risk-return profiles.

It’s tempting to view the infrastructure opportunity as only a collection of sectors and risk profiles because it can give a certain level of clarity and understanding, but investors should resist that temptation.

Experienced infrastructure investors will tell you individual investments should be reviewed on case-by-case basis, with each asset put under the microscope to determine the risks and potential returns. There are simply too many moving parts to parcel out commitments by ticking off sector, geography and risk-return profile boxes alone: different countries with different rules and regulations and political risks; different relationships to inflation and to economic growth; and, to complicate matters, many new managers who have yet to make a round trip investment from closing a deal to managing it to exiting.

This idea of infrastructure being a bespoke asset class is true on the capital formation side of the equation, too — each investor’s approach to the infrastructure opportunity is based on the unique make up of its beneficiaries and the portfolio objectives it assigns to infrastructure investments. Many investors want infrastructure to give them cash yield, diversification and inflation hedging with relatively low risks, but others see opportunity for capital appreciation and set up their infrastructure program to invest in higher risk-return opportunities.

Infrastructure investing is many things to many people.

The general warning for all, however, is don’t oversimplify. But when an investor is first learning about infrastructure investment, these sectors are certainly a useful way to make sense of the opportunity. And it also can be helpful to use a familiar risk-return framework to make sense of the opportunity — core, value-added and opportunistic, for example, to measure the risks and returns.

But the message I hear from our conference attendees and Editorial Advisory Board members is that a core, value-added and opportunistic model and rigid delineation of sectors is misleading if you don’t look deeper into all the other variables.

It is understandable why this happens — investment staffs need to understand and communicate a new investment class to boards of trustees and investment committees that are not as well versed as they are. So they fall back on models that their trustees and committee members are familiar with and understand in order to communicate the opportunity.

It’s a good start, but investors and their trustees and investment committees need to realize that just because an asset is in a particular sector that has a reputation for core assets or is in a developed country that has a track record of strong rule of law or a strong rate of growth, it is not necessarily a slam-dunk “core” investment.

Simply taking what works in real estate or private equity — the core, value-added and opportunistic risk-return framework and dividing the assets among their various sectors — is not necessarily wrong, but investors have to be careful not to embrace the comfort of the familiar only to later realize they oversimplified the opportunity and missed important details that will make or break an investment.

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DrewWebsiteDrew Campbell is senior editor of Institutional Investing in Infrastructure.

The Manhattan high life

Brooklyn-Bridge-3New York City has a personality as macho and rock solid as the Brooklyn Bridge. That sense of self doesn’t change easily. But a new trend in high-rise residential real estate might be putting a dent in Gotham’s impregnable armor.

Racing skyward in midtown Manhattan are ever taller, ever thinner high-rise condos that are breaking records ranging from altitude to price. That has not escaped the attention of Vanity Fair magazine, which published a feature story about the trend in a recent edition.

One of the projects spotlighted is 432 Park Ave., which will contain 104 apartments that will occupy either an entire floor or a half-floor. The loftiest of them all, a full-floor unit on the 96th floor, will be the highest residence in the Western Hemisphere. That penthouse has already sold for $95 million to an unidentified buyer.

As 432 Park Ave. and other super-luxury condo towers soar skyward, shadows creep across Central Park and call into question the longer-term architectural character of Manhattan. The schematic info-graphic produced to accompany the Vanity Fair article offers a fuller picture of the magnitude of the high-rise condo boom.

Perhaps, as the article suggests, real estate projects really can be too rich, too tall and too slim — at least for a city that prides itself on rock-ribbed masculinity.

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MikeCfinalwebMike Consol is editor of The Institutional Real Estate Letter – Americas.

Video killed the radio star, part 2

As those of you who are avid blog readers know, back in August 2013, I wrote a blog post about our new videos that would be coming out on our website called “Video Killed the Radio Star.”

With technology updating every second of every day, IREI has been following suit and has come up with a new addition to the video family. These sessions will be one-on-one sitdown interviews with Geoffrey Dohrmann, as well as various staff from IREI.

As you can see, these videos are more updated with nice backdrops that ease the eye for great viewing pleasure, as well as a more “studio” feel with multiple cameras and nice lighting. Yep, we’re moving up in the world here at IREI and we only wish to get you the best content on any plane.

If you’d like to check out this video, just click the play button below (or click this link). I promise, you won’t be disappointed. Geoffrey Dohrmann speaks with Matt Slepin, of Terra Search Partners, about human capital, executive training and real estate career development.

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DenisefinalwebDenise DeChaine is special projects editor and video production specialist at Institutional Real Estate, Inc.

Asia and the global economy

I attended the APREA Property Leaders Forum 2014 in Hong Kong held by the Asia Pacific Real Estate Association. The forum focused on whether this will be the Asian century.

The second day of the conference started with the keynote interview: Asia and the Global Economy. Lorraine Hahn, former CNN presenter and international journalist, interviewed Patrick Chovanec, managing director and chief strategist at Silvercrest Asset Management and Yu Yongding, an academic and senior fellow with the Chinese Academy of Social Sciences, who previously served as director-general of the CASS Institute of World Economics and Politics.

The discussion started with global issues, and Chovanec pointed to strengthening consumption in Europe and Asia. This was somewhat counterintuitive, given the fact that the credit crunch in Europe has not been fully resolved. But he quoted data suggesting an increase in consumer spending and a slow improvement in consumer sentiment. The United States was praised for its growth in productivity, low energy costs and subsequent steady, though slow, growth.

Both Chovanec and Yu were less positive when the discussion turned to China. Yu said China will face a painful readjustment as it badly needs to change from its current investment-driven economy to a consumer consumption–driven model. As for the investment environment in China, Chovanec predicted that when people make investments based on the government’s promise that there is no risk, rather than on economic factors, there will be many unpleasant surprises. His forecast is supported by several recent defaults by Chinese companies, the first in recent Chinese history.

Additionally, there was a rather important announcement at the end of the conference. If you have not heard already, Peter Mitchell, CEO of APREA for many years, will be stepping down. Peter Verwer, CEO of the Property Council of Australia, will become APREA’s new CEO, starting in July.

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AlexFinalv3webAlex Eidlin is managing director – Asia Pacific of Institutional Real Estate, Inc.

Do or die

I was going to write something about the recent European Parliament elections, the rise and rise of the “eurosceptic” parties, and the usual jockeying and shilly-shallying for positions and national prestige in the new European Commission. But you don’t want to know about that.

I’ve just finished an article for the July/August issue of The Institutional Real Estate Letter – Europe on global cities. It wasn’t a place for saying which will be the world’s top city in 2030 — that moniker depends on many variables. On GDP, it’s Tokyo. On population, it’s Jakarta. On the projected change in GDP to 2030, it’s New York City. On the projected change in population to 2030, it’s Lagos. If you want to know more about the world’s top 750 cities and their relativities, get Oxford Economics’ recent Global Cities 2030 report.

A lot depends on the sector and parameters you pick. Reports on global cities and the place of real estate are not just the preserve of the institutional investors who are IREI’s principal target audience. A recent article in this blog space detailed the findings of the Candy GPS Report, produced by Candy & Candy in association with Savills and Deutsche Asset & Wealth Management.

From the perspective of ultra-high-net-worth investors, we read that the top 12 cities-on-the-rise in the world include the usual suspects like Chicago and Melbourne but also some unlikely names like Beirut and Panama City that would not normally feature on institutional investor shopping lists. That’s primarily because the report was looking at UHNW investor views on prime residential property prospects, and such investors see things in other ways.

For UHNW investors, price — and therefore price performance, also known as value for money — is not a principal criterion; it’s being invested full stop and preferably in a capital-preservation and we-can-live-there-if-we-have-to way. The recent sale of the 1,486-square-meter Penthouse D in the luxury One Hyde Park development in London to a Russian or Ukrainian investor (there is still a difference) for a reported record £140 million ($235 million/€172 million) — or £94,213 ($158,400/€116,000) per square meter, and that on a core-and-shell basis — tells you all you need to know about that investor’s views on the prospects for his home country and the merits of keeping the money in the domestic market.

Talking of UHNW investors, another way of ranking the top global cities, and one used by the Sunday Times in its 2014 Rich List, is by counting the number of resident billionaires. On this basis, London came first, with 72 sterling billionaires; Moscow second, with 48; and New York City third, with 23. Billionaires are not IREI’s and our publications’ market, but billionaires are fast movers, and where they operate institutional real estate investors and other recipients of billionaire largesse, liquidity and fleet-footed money-making activity often follow.

Let’s not forget that none of this free-market expression and all that it entails would be possible if we hadn’t won the war. By “war”, I mean the Second World War; by “we”, I mean people on all sides. Totalitarian, command societies — whether left or right — are not pleasant ones. We would have had radar, jets and nuclear weapons even if we hadn’t won the war, but would we have had electronics, computers and smartphones? Moon travel?

Today, June 6, 2014, is the 70th anniversary of D-Day, the invasion of France in 1944 by Allied forces and the start of the final push to victory against Nazi Germany in the Second World War. Gaining the beachhead in Normandy on this day 70 years ago was a tremendous military and logistical achievement, and we are unlikely ever to see its like again.

Nor do we want to. The European Union and its various constituent elements should recognize that the recent European Parliament elections were a clear signal from the people of Europe that they are not happy with the state of Europe, in all senses. If the E.U. chooses not to reform from within, some people might begin to think they can do better without.

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RichardFlemingRichard Fleming is editor of The Institutional Real Estate Letter – Europe.

Triple A stories

As we enter the summer reading phase of our year, I just finished Where Nobody Knows Your Name: Life in the Minor Leagues of Baseball by John Feinstein. For those of you not familiar with this sportswriter’s work, he is also the author of A Season on the Brink: A Year with Bob Knight and the Indiana Hoosiers, A Good Walk Spoiled: Days and Nights on the PGA Tour and the underrated The Punch: One Night, Two Lives, and the Fight That Changed Basketball Forever, as well as many others.

This particular story focuses on the lives of baseball players in the minor leagues mostly in the Triple A. These individuals include those that have been at the top of their games in the Major Leagues and have been sent down due to injuries, age and more often than not “losing it” in terms of being the best at what they used to be. It’s their unforgiving drive and in many instances ego that keep them going. There are also those players who have never made it any further without any real hope of moving up, players who have been up to the majors for one at-bat, and also those who are very young and destined for true stardom.

In one interesting passage we learn that there was an actual Crash Davis whose name gained stardom in the classic movie Bull Durham, although the real Crash Davis did actually make it to the Philadelphia Athletics in the early 1940s for a brief time. For many of us, it’s easy to fantasize about playing baseball as many of us have held a bat in our hands and felt the beautiful visceral connection to connecting with a ball.

For those who follow the sport, there are many familiar names such as Scott Elarton, Dontrelle Willis, Brett Tomko and Scott Posednik, who have all attained some success and fame at the top. What is really striking about this book is not really the stories about these players and not even some of the heartbreaking stories about those who never quite make it although they began with great promise.

The true nugget of inspiration comes from those in the minor leagues that we really don’t focus on. There is the story about the career minor league umpire who finally has to come to terms with whether there will be a call up to the major leagues. Or the one about the sportscaster who has been knocking around down there for two decades and is always on the “short list” for the next call up. And, finally, the managers who so often sit and wait for the call as well while there are others who are really content just where they are.

Very often when we look beyond the people who play the game, no matter the industry, and see the ones who are actually holding it all together is when the entire picture comes into focus. We all have umpires, sportscasters and managers in our organizations although we call them by different names and they all contribute in what is perceived to be minor ways but have major impacts on how we get our jobs done.

Finally the one lesson that can be gleaned from Where Nobody Knows Your Name is that every single person at the Triple A level is the best in the world, except for the 750 players ahead of them.

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JS_91x119Jonathan Schein is senior vice president – sales and managing director – Americas at Institutional Real Estate, Inc.

Infrastructure secondaries: a primary resource?

In a January blog post, “Secondaries: Really for real this time (it seems),” we noted that the long-anticipated coming-out party for real estate secondaries finally happened in 2013 with $5.1 billion in real estate secondaries transacted. But it seems that market forces may be pushing infrastructure secondaries to join the party too.

As Scott Chan, chief investment officer with the Sacramento (Calif.) Employees’ Retirement System, explained in a recent conversation:

“We think that, in the secondary market for infrastructure and energy, a classic supply/demand imbalance is forming. On the supply side, there should be a decent sized market considering that there has been maybe $300 billion raised over the last four or five years for infrastructure and energy funds and a certain percentage of that should be coming out to the secondary market. We also think that regulations are changing with regard to banking and insurance companies, which could lead to further supply. Additionally, there could be some mismatches in regards to LPs’ expectations and what gets delivered. I say that because we’ve interviewed a lot of primary funds, the GPs, and we think it’s an evolving space; we don’t think that it’s set in stone. So there could be a measure of disappointment and that could feed into a greater supply in the secondary market as well.

On the other end, on the demand side, we don’t think the main private equity funds are terribly interested in infrastructure because of the lower risk/return profile. Furthermore, you really need to understand how to value these assets, you need to have experience in the secondary market and sourcing, and we also think you need to have primary experience because you can better develop your network, triangulate the data and also be a natural buyer. Because, if you’re in the primary market, you’ll probably be thought of and contacted if there is an LP that wants to get out. It’s hard to find somebody with all of those elements — somebody with a ground-up experience of valuing these assets and who has that experience in both the secondary and primary markets — because you really need the expertise of the underlying asset classes or the asset. Especially considering that most secondaries have been through their investment period, so you’re just looking at the asset and saying, ‘What do we have on the books here? What are the characteristics? What are the risks?’

So we think that the demand side might be limited.”

SCERS recently committed $100 million to a separate account with Pantheon Ventures that is focused entirely on purchasing secondaries of infrastructure and energy partnerships. And research suggests they won’t be alone investing in the infrastructure secondary space — which saw $700 million in transactions during 2013 — as 30 percent of survey participants in Setter Capital’s Volume Report broadened their secondary focus to include alternative investment types during the second half of 2013, and approximately 24 percent of participants stated that they plan to broaden their secondary focus in 2014 to include buying alternative investment types.

Look for alternative secondaries to become a primary resource for institutional investors before long.

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ReggieClodfelter91x119Reg Clodfelter is a reporter with Institutional Real Estate, Inc.