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Dec 16 2008


One of the sessions at this year’s Real Estate Conference was titled “Core versus Non-Core Opportunities; Emerging Property Sectors.” The panel included three Kellogg Alumni—John Montaquila (KSM '95), Principal of M3 Capital Partners, Jay Weaver (KSM '95), Principal and Co-Founder of Walton Street, and Barry Malkin (KSM '88), Principal and Co-Founder of GEM Realty. Michael Nigro, Vice President of RREEF, was the fourth representative on the panel. Kapila Annand, National Partner with KPMG, moderated the panel and posed questions on topics such core versus non-core property types, rising investments in student housing, and upcoming investment opportunities.  

Each panelist had a slightly different view of the definition of core property, but most agreed that core properties consist of properties that generate predictable streams of income over time and provide a liquid market for exit.  The panelists generally agreed that they look for non-core properties that have value-added opportunities. Mr. Malkin specifically stated that GEM Realty targets non-core properties that can become core properties through GEM’s value added.  

When asked about the student housing sector, panelists generally agreed that even though it was not an attractive investment area a few years ago, it is a non-core property type that is relatively safe and offers opportunities today.  Mr. Montaquila and Mr. Malkin pointed out that several years ago there were risk premiums on student housing because it was not considered as liquid as more traditional multifamily housing and it still had negative demographic trends from the late 1990s. As a result, universities did not want to be involved and real estate firms were able to underprice the universities and provide better service. But there is currently a steady demand for student housing. Therefore, most agree that it is easier to charge higher per-square-foot rent, and that with a good operator there is more potential for higher cap rates than in the traditional multifamily housing sector.  

To conclude the session, Mr. Annand asked the panelists to predict real estate investment opportunities in the 12 months.  Nearly all of the panelists agreed that distressed land would be attractive due to the sub-prime market issues. “A lot of land will need to be liquidated,” noted Mr. Malkin. Mr. Montaquila, in particular, also saw opportunities in class-B assets that companies could develop or redevelop. Finally, Mr. Weaver and Mr. Malkin recognized that the debt market offered significant opportunities.

About the Author

This article was written by Laura Green '09.