NEW YORK — What are some sure-fire investments the real estate industry is missing out on today? What current investment strategies are destined to bomb? Industry experts provided some insider investment tips on those topics at the Pension Real Estate Association (PREA) 2001 spring conference, held March 8 to 9.
In the Marketwatch session, moderator Susan Hudson-Wilson, founder and CEO of Boston-based Property & Portfolio Research, asked each participant to list one winning and one losing investment strategy.
Jacques Gordon, international director for Chicago-based LaSalle Investment Management, brought a global perspective, citing South Korea as a recommendation for those looking for high-risk/high-yield returns. “Take a country that's in the top 20 countries in the world, as far as Gross Domestic Product (GDP), and get the country off the rails and watch the fun,” he said. “Real estate hasn't been professionally managed in this country [South Korea].”
Peter Linneman, an Albert Sussman Professor of real estate, finance and public policy at the University of Pennsylvania's Wharton School of Business, suggested investing in low-end student housing. “I've learned what you really want to do in the capital business is take capital where it isn't at,” he explained. His choice is founded on demographics. He expects the Baby Boomer's children, a group called the “echo boom,” to start flooding universities in the next few years. To take advantage of the influx, he suggests securing older houses near university campuses and refurbishing them into apartments.
Lawrence Raiman, director of New York-based Credit Suisse First Boston (CSFB), said investing in healthcare properties in close proximity to hospitals presents a can't-miss opportunity. The expanding life span and wallets of senior citizens will drive demand for these properties, he said. “There is not a lot of competition for investing in healthcare properties,” he added. Hospitals will no longer be able to monopolize ownership of surrounding buildings due to federal legislation. “What you have is an opportunistic chance to step in,” Raiman said.
Raymond Torto, principal and managing director of Boston-based CB Richard Ellis/Torto Wheaton Research, suggested a portfolio allocation designed to maximize returns on pension investments. His ideal allocation is comprised of 20% core assets, 40% industrial, 10% multifamily, 20% office and 10% retail.
The panelists also gave their picks for the worst investments. Gordon offered up a real estate/technology partnership as the stupidest idea out there. He said that this partnership has a value proposition of zero. “Stop it. It ain't going to work,” he said.
Linneman said it's too early to invest in seniors housing. While developers continue to believe that the Baby Boomers are ready for retirement housing, he said a huge demand for senior housings is 15 years away.
Raiman listed the Northern California office market as the worst property type to pursue. He cited the tremendously high market rents as an example of why this market is poised to fail. “The space absorption will likely be negative,” he explained.
Torto, meanwhile, said the worst idea in the marketplace is to buy on performance cash flows instead of real cash flows.