Quest for Growth Tops Agenda at NYU-Schack REIT Conference

Where is the growth in an age of uncertainty? Some of the industry’s most influential leaders wrestled with that timely question Thursday at the annual REIT conference organized by New York University’s Schack Institute of Real Estate.

By Paul Rosta, Senior Editor

Jonathan Gray of Blackstone (left) and William Ackman of Pershing Square Asset Management speak at the Schack REIT discussion.

Where is the growth in an age of uncertainty? Some of the industry’s most influential leaders wrestled with that timely question Thursday at the annual REIT conference organized by New York University’s Schack Institute of Real Estate.

Several members of the opening panel agreed that, for the most part, REITs should stick to their knitting. “Our mainstay is high-quality retail real estate,” said Robert Taubman, chairman & CEO of Taubman Centers Inc. “We don’t know anything about the apartment business, and we don’t know anything about the office business.” But he also stressed that the answer is not necessarily cut and dried: “I do think you can morph into areas slowly, a step at a time,” he added.

Michael Kirby, chairman of Green Street Advisors Inc., looked askance at the REIT model in Europe, where most public real estate companies tend to be multi-sector. “A lot of leverage plus development activity is pretty dangerous — plus they’re unfocused,” he said. Ventas Inc. chairman & CEO Debra Cafaro also noted the contrast in the U.S. and European styles of REITs; the nuance, she added, is that “Most of the sectors do touch at the margin.” For example, she noted, senior living, a growing niche in which Ventas is a market leader, has a considerable overlap with the multi-family business.

Whether REITs should look outside the U.S. was a question that speakers brought up repeatedly during the day-long conference. Taubman cited his firm’s success in China, where his company applies U.S.-style retail programming and counts on its local partners to navigate the bureaucracy. Throughout the day, executives cited Simon Property Group Inc.’s $2 billion deal last month for a 29 percent stake in Klepierre, a Paris-based retail real estate company.  To be sure, Europe will offer plenty of other opportunities, including distressed assets, noted Michael Kirby, chairman of Green Street Advisors Inc. Nevertheless, he recommended that most REITs stick to what they know. “I hope must U.S. REITS stay out (of Europe) and leave it to Blackstone to fix, because I don’t think it’s their core competency.”

A few hours later, the chief architect of Blackstone L.P.’s real estate strategy himself weighed in during a lunchtime roundtable. The powerful hedge fund has already invested $2.3 billion in real estate assets this year, estimated Jonathan Gray, the firm’s global head of real estate. Markets that offer “a high amount of distress and limited building are interesting places to play,” he noted. Europe does indeed offer a number of places that fit the bill.  Although the European Central Bank has staved off a panic for the time being through massive infusions of capital into the financial system, Gray expects distressed properties to hit the market at a picked-up pace. One caveat: low growth will characterize Europe for some time to come, Gray said, and “it’s important that your pricing reflect that.”

Blackstone’s trademark is finding potential upside in distressed or underperforming properties, and Gray hinted that more of the same is ahead. In the past year, Blackstone had closed blockbuster deals like the $9 billion acquisition of Centro Properties Group’s U.S. retail assets, and the $1.1 billion pickup of suburban office assets from Duke Realty Corp.  “I’m not saying that investing in suburban office holdings is the same as investing in West L.A. or New York City,” Gray explained. But “at the right price, I think you can make a good investment.”