What development opportunities are the leading companies pursuing now? Current investment strategies of three major companies were the topic of this session, as the panel discussed the location, property types and financing structures of recent deals. There was also some general discussion about moving away from the ‘buy low-sell high’ approach towards participating in the various debt and equity capital stocks as a way to invest in projects.
ING Clarion Partners, part of ING Real Estate, is a real estate investment manager. Jeffrey A. Barclay, Managing Director, indicated the company focus is to always add value, as opposed to defining properties as core, value, etc. His examples of recent investments spanned the country and property types: an aging Cape Cod resort where they are upgrading and enhancing the property; a movie theater on Third Street Promenade in Santa Monica, one of the highest grossing retail streets in the country, that they will reposition as retail; industrial build-to-suit, a situation where they are buying out their partner; a shopping center in West Virginia; an apartment building. The industrial property, acquired at a 7.5% cap rate, is expected to provide an unleveraged IRR of 8%. The retail property, acquired at a 7.5% cap rate, with low leverage is expected to provide an IRR of 9.5% over 10 years.
The JBG Companies is an investor, owner and developer in the Washington metropolitan area, buying and developing in all three jurisdictions (Virginia, Maryland, Washington, D.C.). Michael J. Glosserman, Managing Director, indicated their investment strategy is to be on the front end of the execution strategy, underwriting for a ten-year period. Up until 2008, they were only in value creation; after the crash JBG went into buying value (core and core plus) and this ended in the summer 2009. JBG is now back to creating value, and projects include a range of property types: Income properties with redevelopment plans; a GSA pre-leased, build-to-suit office development; residential development in select suburbs and the urban core; urban, big box retail with mixed-use components; and urban select service hotels. JBG’s target is an IRR of 20%, looking to a return to investors of 16%.
AvalonBay Communities is a REIT focused on development, redevelopment, acquisition and management of apartment communities in the high barrier-to-entry markets of the United States. Kevin O’Shea, Senior Vice President, described an acquisition fund formed in 2008 (their first acquistion fund closed in 2002) through which the company now acquires investment interests in existing apartment communities. This acquistion fund is a private, descretionary investment vehicle in which AvalonBay Communities, Inc., has a 31% equity interest. After initially sitting on the sidelines, the value-added fund began acquisition in 2009 with the purchase of two properties, one of which was Hermitage in Fairfax, Virgnia. This is a well-leased, Class B, 23-year old multi-family property with potential for renovation. The financing involved an acquisition cap rate in the mid-6 range and 60% debt financing at 5.25 %. An example of a more recent purchase is Creekside Meadows in Tustin, California, a well-located multi-family property purchased for well-below the 2006 price paid by the previous owner. This deal involved a mid-5 cap and a 3.8% interest rate.