The further away you go from home, it can just be treacherous
MONTREAL ? There are executives in Canada that are so stuffy and rehearsed they won?t give you the time of day without consulting their media relations handler. And then there?s Bill Tresham.
The son of a Union Carbide factory worker in Welland, Ont., the president of global investments at $30-billion property giant Ivanhoe Cambridge is about as unpretentiously off-the-cuff as they come. Not what you might expect from a Princeton-educated hockey player with a McGill law degree who obsessively collects Italian wines.
Hamming it up with a photographer during a recent interview, Mr. Tresham asks how he should pose. ?Do you want Fabulous Baker Boys style?? he asks, stretching across a table in imitation of Michelle Pfeiffer?s lounge singer routine in the 1989 romantic comedy. There?s laughter. And then more jokes when someone suggests he?s more interesting than Ivanhoe is.
?That wouldn?t be hard,? he says. ?It?s the real estate business. You keep the lights on, regulate the temperature, make sure the parking lots are safe and you win.?
Not quite. If that were true, Ivanhoe would have delivered more than the 10.7% annualized return for controlling owner Caisse de d?p?t et placement du Qu?bec since its reorganization in 2009. If that were true, it wouldn?t have to deal, as it currently does, with investments that have soured, like the nightmare that is now Moscow shopping centre Vremena Goda.
No, this business is a tricky balancing act between tapping payoffs today and creating longer-term value for years ahead. At Ivanhoe, that?s a work in progress ? one that is seeing the real estate operator simplify its holdings and concentrate on a smaller number of geographies as it becomes an increasingly important part of the Caisse?s overall private-asset strategy. Ivanhoe plans to spend an estimated $10-billion on new properties as it speeds up asset purchases over the next 18 months. And if past investments included some questionable buys in places it wasn?t all that familiar with, new spending will be all about sticking to the top-drawer assets in the cities it knows best. Out with the multi-flavour sampler pack, in with the choicest proven stock.
Russia, as it happens, is in the out category. Caisse executives don?t consider the country an investment priority because of governance and transparency issues, frequently repeating that they?re interested in BICs (Brazil, India, China), not BRICs (those countries plus Russia). Ivanhoe liked the nation initially but things have changed.
The property company has one asset in Russia, a 60% interest in the high-end Vremena Goda shopping centre in Moscow, which it bought in 2008 with Austrian real estate fund manager Europolis. When it bought the stake it considered the country a promising new market. Now it?s finding that being successful in Russia (the asset has increased 25% in value in the past year, Mr. Tresham says), has a price.
?You wouldn?t believe the stuff that?s happening,? Mr. Tresham says. ?The sanitation department has called us and said ?Well your toilets aren?t working. Got a cheque for me?? Guys are running around with guns. And now they?re after us because we have a bar in the mall and there were some rowdy people in the bar. To me, that?s sell.?
?So we?re going to sell the Moscow mall,? he continues, adding handling that could be tricky because Europolis may not want to sell its portion. The lesson? ?The further away you go from home, it can just be treacherous.?
Our success has been to get our hands on great assets through screwed-up ownership. And you know? Not everyone is willing to do that work
China has proved that point as well. Ivanhoe has had a presence there for years, buying and managing a shopping centre among other properties. But it got caught up in too much small operational detail and was never able, as an outsider, to get decent access to substantial acquisitions that would deliver better returns.
Now it is switching course, partnering with big local players to unlock opportunities. A new partnership deal for an office park property will be announced soon. Other buys will follow.
?The further you go afield, the less control you have,? says Sylvan Adams, one of Canada?s shrewdest property developers and head of Iberville Developments Ltd. ?Then you start needing local expertise.?
Ivanhoe considers its biggest investment opportunity to be its nearest international market ? the United States. That?s where it wants to park the bulk of its short-term spending.
The type of investments, however, won?t be the same as in the past. The company was badly burned in 2008 by risky property investment strategies that saw it bet on so-called mezzanine loans (basically second mortgages on U.S. commercial property), in the mistaken belief that real estate values would climb indefinitely. Instead, they crashed. More than two thirds of a $5.7-billion writedown by the Caisse in August 2009 came from that flameout.
The result was an almost complete freeze in new U.S. investments for three years that followed as the Caisse took stock of its holdings under new chief executive Michael Sabia. And while other rivals like Brookfield Asset Management jumped into the smouldering ashes of the U.S. housing market by buying things like monster-home property developments in Los Angeles at deep discounts, Ivanhoe shut off the money spigot.
When it got back in the game, Ivanhoe was behind, Mr. Tresham says. It tried to make up for lost time but in a disciplined and workman-like way. It bought rental housing stock in California?s Silicon Valley ? indirectly betting on the growth of Apple Inc. and Google. It bought a minority interest in an existing midtown Manhattan office tower and announced plans to build a tower in Chicago.
Most recently, it signed a partnership with Callahan Capital Partners, a Chicago real estate investment firm that formerly employed Mr. Tresham, to help it manage its U.S. office real estate portfolio and acquire more property. Now it?s looking at several large possible deals in shopping centres, Mr. Tresham says, and could replicate its successful partnership in Brazilian malls.
The goal is to stick to investments in its three main asset classes ? office, multi-residential and shopping. And do it in a coherent way by buying in primary market cities where it can maintain a high level of liquidity value and sell them if need be. Think Seattle, Boston, New York.
?I think we?re finally this year mobilized to really get it done? in the United States, Mr. Tresham says. ?We have to get better at our game. And you know, the opportunities are there.?
Picking them, however, means not blowing your brains out.
As fundamentals improve for all kinds of property in the United States, institutional and private equity players alike are gobbling up real estate at a quicker pace as returns on alternative investments are anemic. But with more buyer interest comes higher prices. Ivanhoe has taken part in a few auctions over the past year that would have yielded capitalization rates of 5%. It did the auction to gain intelligence about the process and the competitors but passed on the buying, judging that the earnings potential was too low.
Competition for assets is even more fierce in Europe?s premier real estate markets, namely London and Paris.
Ivanhoe is retrenching its holdings in Europe to those two cities and selling elsewhere. The reasons are simple: Safety and scale. Europe?s office real estate market is concentrated in those two urban areas (Paris alone is 300 million square feet of space, 10 times larger than downtown Montreal) so liquidity is gigantic. Ivanhoe also has an established presence in those two places, built up over years, that gives it critical mass and local experience. That in turn means the company is among the first called when a seller pops up.
To avoid overpaying and still get in on good opportunities, Ivanhoe has gravitated recently towards what it calls ?messy? deals.
In one case it teamed up with U.S. private equity firm TPG to buy London?s Woolgate Exchange for $400-million, an eight-storey building close to the Bank of England. The partners won the edifice after first buying up a subordinate tranche of debt from a bank when the property?s owner defaulted on its loan. They were able to negotiate with the junior and senior creditors to buy the building.
In another agreement, Ivanhoe bought the Paris headquarters of PSA Peugeot Citro?n for $350-million, besting rival bidders who wanted to kick the automaker out, renovate and double the rent. It struck a deal with the cash-pressed carmaker allowing Peugeot to lease the space for nine years for a 7% rent return to Ivanhoe. If Peugeot wanted to move at any time, Ivanhoe would pay it $5-million to leave.
?Our success has been to get our hands on great assets through screwed-up ownership,? Mr. Tresham said. ?And you know? Not everyone is willing to do that work.?
Mr. Tresham seems to have work in his blood. That ethic, paired with the Caisse?s massive financial resources, means it could be tough to bet against him in the years to come.
?I had two conversations with my dad that were really painful,? he concludes. ?One was telling him not to retire. And I told him that for a year. Finally he stopped me and he said ?Here?s the deal. You work for 41 years. And then you give me advice about [when to stop].? His dad was 57 at the time.
The other conversation came after his father decided to sell his house, a subject with which the younger Tresham was by then intimately familiar. The selling price was $120,000. And his dad took a deposit from the buyer for $100.
?I said ?Dad, [are you nuts?] You don?t take a $100 deposit on a $120,000 sale.? And he said ?You do whatever you want where you live. I live in Welland and $100 is enough for me. The guy closed. We get $50-million deposits and we still don?t know if the guys are going to show up at closing.?
Source: http://business.financialpost.com/2013/03/09/riding-the-roller-coaster-of-global-real-estate/
marist south carolina primary results betty white ed reed football schedule jo paterno dead south carolina
No comments:
Post a Comment