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James Clewlow, CenterPoint CIO.

Bricks and mortar

CenterPoint CIO shares taste of real estate industry with EMBA students during lunchtime speaker series

By Matt Golosinski

1/23/2007 -  Lunch is no excuse to stop learning.

At least that’s the attitude at the Kellogg School’s Executive MBA Program, which regularly invites business leaders to share their knowledge and experience with EMBA students at the James L. Allen Center.

Proving that radicchio and real estate can mix was recent guest James Clewlow, chief investment officer for CenterPoint Properties, an Oak Brook, Illinois-based owner, manager and developer of industrial real estate with 22 branded business parks in the Chicago area. Clewlow, a 2004 graduate of the Kellogg Executive MBA Program, returned Jan. 19 to offer current EMBA students a look into the industrial real estate space. He recounted some of the history behind the 22-year-old CenterPoint — formerly a public company that was purchased in March 2006 by CalEast Global Logistics, a leading investor in logistics warehouse and real estate whose members include the California Public Employees Retirement System (CalPERS). Clewlow noted the ability of CalPERS to “move the market,” given its position as the largest pension fund in the U.S., with some $200 billion invested in stocks, bonds, funds and private equity.

In fact, investment figured into Clewlow’s discussion as he noted real estate’s position toward the middle of the market in terms of annual returns. The sector’s 7-to-8-percent return is attractive especially to institutional investors who want to balance portfolios containing equities and bonds, said Clewlow.

He also said that industrial real estate was analogous to the “bond” portion of the real estate market, meaning it presented more stable property types compared with the residential sector. It also allows CenterPoint, a company specializing in the Chicago market, to focus its efforts in a way that Clewlow said is strategic.

“You need focus when investing in real estate,” he said. “Always assume someone’s smarter than you.”

Clewlow, who became CIO in January 2005 after serving as the company’s senior vice president of investments, noted that the real estate market is “inefficient by its nature,” with no two properties being identical. Other challenges involve using information in “forward-looking” ways to counter the fact that property valuations — one key industry metric —represent a lagging indicator, often by about six months.

“To be successful, you have to use information that not everyone else has,” said Clewlow, adding that he was not talking about leveraging illegal data, but simply working harder to ferret out valuable details that could be used to minimize risks and increase profits.

The Kellogg graduate also reflected on the mixed opportunities of being a privately held company, rather than a public one. “Being private allows you to take a longer-term focus,” he said, rather than forced into short-term positions by the market and shareholders who demand quarter-by-quarter results. Failure to deliver in one quarter may have more immediate ramifications for a public company’s strategy, said Clewlow, if shareholders grow impatient and demand change.

In terms of the real estate sector’s outlook, Clewlow said his company relies on the same macroeconomic indicators that everyone else does. The longer he and his colleagues look at the data, the more it seems as if no one can say for sure what will happen in the industry, he stated, which is why CenterPoint pursues a “defensive” strategy in some of its investments, stabilizing assets and then turning them over relatively quickly.

“The longer you hold assets, the more risk you take,” said Clewlow.