On February 12, the latest Kellogg Real Estate program Distinguished Alumni Panel was held at Wieboldt Hall to discuss the growing relevance and importance of cross-border investment in real estate.
The panel was moderated by Jonathan Glick ’04, Founder and Managing Principal of Incubation Capital Partners (“Incucap”). Incucap is a capital raising and real estate venture capital platform focused on next generation and entrepreneurial real estate investment managers. Glick has extensive investment banking and private equity experience, and spent his real estate career focused on underwriting operating partners as both a principal and advisor. By doing so, Mr. Glick developed an extensive network of relationships with both LPs and GPs across the globe.
Glick was joined by:
- Edgar Alvarado ’87, Group Head of Real Estate Equity at Allstate Investments, LLC. He is responsible for Allstate’s almost $4.0 Billion real estate equity portfolio and he has over 25 years of experience across almost every facet of institutional real estate investing.
- Josh Daitch ’01, Senior Managing Director at Mesirow Financial Institutional Real Estate (“MFIRE”). Mr. Daitch brings over 20 years of real estate to MFIRE. Prior to joining Mesirow in 2001, he was responsible for the execution of over $10.0 Billion in domestic and international real estate and loan portfolios acquired on behalf of Goldman Sachs’ various Whitehall Funds.
- George Lane ’03, Senior Investment Manager at Abu Dhabi Investment Authority (“ADIA”). Based in Abu Dhabi, Mr. Lane is responsible for acquisitions and asset management across property types and geographies throughout the United States.
- Timothy Walsh ’89, President and COO of Gaw Capital USA, LLC. Prior to Gaw Capital, Mr. Walsh was the Director (chief investment officer) for the State of New Jersey pension fund from August 2010 through August 2013.
Mr. Glick kicked off the presentation with a historical overview of global real estate capital flows and discussed recent trends in global allocations. He highlighted the major consolidation of the private equity fund business in the past few years, noting that the top 20 firms control approximately 20% of total assets under management. The implications of this trend are that brand name operators are getting most of the capital internationally, and it can be very difficult for first- time funds to raise capital.
Mr. Glick asked the panelists what were some of the biggest drivers of cross-border investments. Mr. Lane pointed out that his firm, ADIA, with $60.B of capital to invest in real estate, simply has to look outside of Abu Dhabi’s borders to deploy this capital due to the size of its home market. Timothy Walsh agreed, commenting how some countries with overfunded pension systems simply have to look outside their borders because their domestic market is too small. Josh Daitch added that he is also seeing an increase in cross-border investment because institutional investors are becoming more comfortable taking risks versus three years ago.
When asked about the challenges and pitfalls of cross- border investments, the panelists had a number of anecdotes to draw from and words of caution for the audience. Mr. Alvarado reiterated the importance of understanding exposure to currency risk. He alluded to a deal where the asset performed to underwriting expectations, but the currency temporarily moved against his position. He commented that while most investors say they understand their currency exposure and are comfortable with the risk, “it’s different when it actually happens to you”. Mr. Lane then described the importance of local partners in foreign investment. While capital may flow freely across borders, real estate is still a local game. He explained that when ADIA reconstituted its platform from investing in funds to investing in direct real estate investments, it purposely decided to hire local knowledge in each of its countries of operation.
Following the panel discussion, a networking event was held in the reception area of Wieboldt Hall.