Executive Spotlight: David Antonelli, Bentall Kennedy

Early in his career, a well-meaning mentor suggested to David Antonelli that he might consider focusing on finance, rather than real estate, so he could easily transition between asset classes during variable economic times.
David Antonelli

Early in his career, a well-meaning mentor suggested to David Antonelli that he might consider focusing on finance, rather than real estate, so he could easily transition between asset classes during variable economic times.

“In the end, I liked real estate so much that I nodded politely and went on with my career. Twenty-five years later, I’m still in the real estate business,” said Bentall Kennedy’s executive vice president and portfolio manager for its Multi-Employer Property Trust (MEPT), the firm’s open-end commingled private equity real estate fund and one of the largest of its class.

Antonelli talked to CPE about the high-performing MEPT and where it is focusing its investment dollars.

CPE: Give us a brief synopsis of the background of the MEPT fund and its investment emphasis?

Antonelli: MEPT is an open end, core private equity real estate fund that invests in institutional quality commercial real estate throughout the United States. The investment objective of the fund is to provide competitive, risk-adjusted total returns throughout all real estate cycles.

The fund was founded in 1982 by Bentall Kennedy and it now has more than $6.8 billion in gross assets, along with 320 investors, which makes MEPT one of the largest private-equity real estate funds in the U.S.

CPE: What has the fund’s return rate been to date?

Antonelli:  Since its inception, the fund has produced a 7.85 percent total return, and over 90 percent of that total return has come from fund income. MEPT’s total return, I think it’s important to note, exceeds most pension plans’ actuarial assumptions.

The fund’s investment strategy is focused on maintaining strong and stable income, building a diversified modern portfolio, providing superior liquidity, and it’s also executed with strong commitment to the principles of responsible property investing, similarly or frequently referred to as environmental, social and governance principles.

CPE: Can you elaborate on how those principles are defined?

Antonelli: In our minds, responsible property investing incorporates three core principles: environmental, social and governance. Both Bentall Kennedy as the investment advisor and MEPT as the fund place a high degree of value on RPI and ESG principles.

MEPT and Bentall Kennedy continue to be very highly ranked by GRESB, the Global Real Estate Sustainability Benchmark. GRESB is funded by international pension funds to assess real estate managers and investment funds from an environmental sustainability perspective. We take great pride that both Bentall Kennedy as a firm and MEPT have consistently ranked in the top 3 spots since GRESB’s inception.

MEPT also has a responsible contractor policy. It works only with responsible contractors, similar to many other large U.S. public funds. Last, in terms of governance, MEPT has a very distinguished board that governs the fund. Bentall Kennedy has its own board as well. In essence, Bentall Kennedy is run very much like a public company – it is a private company, with individual and institutional owners, but there is also a public company overlay.

CPE: Where does the fund fit under the greater umbrella of Bentall Kennedy’s North American operations?

Antonelli: Bentall Kennedy is one of the largest privately held real estate investment advisors in North America. We advise clients on over $32 billion in assets throughout the U.S. and Canada, totaling more than 140 million square feet of office, retail, industrial and residential properties. With $6.8 billion in gross assets, MEPT is the single largest U.S. client of Bentall Kennedy, and it benefits from the full breadth and depth of resources and expertise of Bentall Kennedy’s North American platform.

Bentall Kennedy employs more than 1300 people in 13 offices. We are an independent investor advisor, meaning that we’re not owned by a large bank or insurance company, so we can focus solely on real estate.  The company is privately owned, one-third by its senior management (U.S. and Canadian partners) and one-third each by its two institutional partners, which are California Public Employees Retirement System (CalPERS) and British Columbia Investment Management Corporation (bcIMC). The combined institutional and management ownership really does result in a very potent blend of institutional stability, a long-term fiduciary perspective, coupled with the extensive management expertise and strong real estate skills of management. Our differentiators, as we see it, are the integrated North American platform, top quality in house research, extensive front line leasing and property expertise, and a renowned in-house build to core expertise, where we invest in development projects.

CPE: Who are the MEPT fund’s investors?

Antonelli: MEPT’s investors are institutional, primarily Taft Hartley and public employee pension plans. Recently the MEPT strategy has been structured to also allow other types of investors to invest in the fund, such as foundations, endowments, health and welfare funds, VEBA’s, and non-U.S. investors. We basically are open to all kinds of institutional real estate investors.

CPE: What kind of performance are you seeing within the fund now?

Antonelli: On a one-year trailing basis, MEPT produced a 13.5 percent gross return, which exceeds the preliminary results of our benchmark, which is the NFI-ODCE index, published by NCREIF. The performance has been driven by strong income and appreciation. The fund’s 30 million-square-foot operating portfolio is almost 92 percent leased, and this has resulted in an income return that has exceeded the benchmark for 7 consecutive quarters. The fund’s recent value gains have been driven by the multi-family operating and development assets, as well as our CBD office and bulk distribution facilities. Based on the first six months of this year, Jan. 1 to June 30, we’re expecting the fund to produce a gross return in the range of 9 to 10 percent for 2014.

CPE: Where have you been buying and why?

Antonelli: In general, the fund’s investment strategy is centered on three key themes: the Echo Boom demographic and where they want to live work and play; metro areas with high educational attainment and innovation; and the high growth job sectors of technology, healthcare, education and energy. With these themes in mind, we’ve been acquiring assets across the country, mainly in the primary coastal markets. More recently, with desirable properties in strong markets increasingly trading above replacement cost, we believe that build to core development is a compelling opportunity, especially in these innovation-driven markets. Our focus has been therefore urban high-rise apartments, distribution facilities near major population centers, urban office in innovation-driven locations, urban mixed-use projects, and necessity-based retail (primarily grocery anchored shopping centers). 

CPE: What are some of your largest pending projects?

Antonelli: We’ve been very active on the development side, initially in Seattle and in New York. We built a large apartment project, in excess of $200 million in cost, in the South Lake Union area of Seattle – across the street from what is going to be Amazon’s new 3 million square foot headquarters housing roughly 15,000 employees. We’ve done 11 projects costing more than $1.5 billion in this cycle, including multi-family projects in Chicago, New York, and San Francisco and an office project in Los Angeles. Our latest project, in the South of Market area of San Francisco near the new Transbay Transit Center, is multi-family as well. The idea here is to take advantage of the economic dynamics in these technology-oriented cities, like Seattle and San Francisco.