Green Street Advisors



GlobeSt: Why Are REIT Values Below the Private Market?

According to GlobeSt:

The public market is a bit more concerned about rising interest rates and what might be happening to fundamentals in gateway markets like New York and San Francisco than the private market is, Green Street Advisors’ president of advisory and consulting Jim Sullivan tells Sullivan, a 22-year veteran of the firm, was one of two key members of the its executive team to be promoted recently, following his leadership and contributions as managing director of Green Street’s Advisory Group since 2014.

In addition, Craig Leupold has been promoted to CEO following his accomplishments as president of Green Street Advisors. A 23-year veteran of the firm, Leupold will continue to bring best practices to all segments of the company, as well as explore strategic opportunities to support the firm’s growth. We spoke exclusively with both executives about their new positions as well as some of the bigger trends they are noticing with commercial-property valuations. What are your goals in your new positions at Green Street?

Leupold: My goals in my new position are fairly consistent with goals of Green Street for the last few years. The company has been around for 30-plus years, and initially its focus was providing research, analytics and valuations around publicly traded securities. If you look at the performance of our buy-rated versus sell-rated stocks, in every year our buy-rated stocks have greatly outperformed our sell-rated stocks. My takeaway from that is that Green Street does a great job with real estate analytics in any environment: expansion or contraction, interest rates increasing or decreasing. We’ve done a good job year in and year out understanding what’s driving those real estate companies, and that means we need to do a good job within private-market real estate.

The difference between buy- and sell-rated companies is 20 percentage points per year. We want to leverage off that, so my goal is to take Green Street and the expertise we’ve developed and expand our research offerings and products. Five years ago, we started a new product line called Real Estate Analytics, which is focused on private-market real estate. We recently expanded our market coverage from 35 to 50 markets, and we now cover the 50 largest markets across different product types of interest to real estate investors. We’re now leveraging our expertise from the public market, and we’ll do the same in the private market.

Private-market participants’ concerns are allocating capital, and our job is to help clients allocate capital in the most efficient way possible. They need to ask, “Should I be owning apartments, industrial, office or malls?” And within those, should I be owning apartments in San Jose or Atlanta, and how should I be allocating those dollars and adjusting my portfolio based on where those risk-adjusted returns lie?

One of my goals is to expand the Green Street brand and become a market standard in the private market in the same way we are in the public market. It’s not our intention to compete from a data standpoint. Our intention has always been analytics above the data. There’s lots of proprietary data within Green Street; the real value is analyzing it and providing conclusions for clients to help them allocate capital.

Leupold: “One of my goals is to expand the Green Street brand and become a market standard in the private market in the same way we are in the public market.”

Sullivan: My primary goal is to continue educating the market that Green Street has an advisory group and to help the market understand what we do and how we add value. What are some of the bigger trends you’re noticing with commercial-property valuations?

Leupold: Going back to the depths of the Great Recession, there’s been a tremendous upward run in commercial real estate values. Although the pace has slowed significantly in the past year, CRE prices continue to increase if you’re looking at returns from CRE relative to other capital-market alternatives. We’re quite comfortable with where we are today. The bond and other market yields have declined at the same time that real estate prices have increased. We’re still comfortable with the relationship between returns from real estate and the returns from other capital-market alternatives. We see a balance of funds, not much change in current valuations, and we see valuations as fair among CRE broadly,

Sullivan: We’re at a point where real estate prices are at all-time highs, and that’s naturally creating a lot of strategic questions for owners: Should I buy more, sell what I have, put more chips on the table, take some chips off the table?

One interesting trend: retailers and restaurant companies are not in the real estate business per se, but a lot of them own much of the real estate where they operate, and a lot of them are struggling. Historically, they’ve thought about real estate as a great location to sell sweaters or perfume or chicken wings, but—especially for publicly owned companies who own a lot of real estate, with prices at all-time highs, why don’t you monetize that? Our advisory group works with them to help them develop a strategy to extract some of that value for shareholders.


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