Perspectives on operating company partnerships were shared on the second day of the Institute for Real Estate Operating Companies’ 2019 iREOC Annual Membership Meeting, held May 14 through May 16 in Park City, Utah.
One session was “Investing in Company/Entity-Level Partnerships with REOCs Examined,” moderated by Andrew Silberstein, partner with Almanac Realty Investors, and with panelists Dirk Aulabaugh, managing director, advisory and consulting, at Green Street Advisors; Russell Platt, CEO of Forum Partners; and Eric Schlenker, investment manager at the $358.63 billion California Public Employees’ Retirement System.
Historically, most real estate investments are made at the asset level, but panelists saw momentum moving toward corporate capitalization in the real estate industry.
Prime considerations for operators when thinking about taking an entity-level investment from an investor or investment manager: financial reporting and disclosure become even more important; capital allocation decisions are made by a larger group of stakeholders; corporate governance becomes much more important as well; a strong capital partner provides the ability to scale much faster; and potential conflicts of interest need to be mitigated.
In the afternoon, Dodge Carter, managing director and multifamily product leader at Crow Holdings Capital, and Russell Dixon, president, CEO and managing principal of RedHill Realty Investors, presented a case study investment in a presentation called “Investing in a Specified Deal Partnership Examined.” (The deal is covered in the Spring 2019 issue of iREOC Connect.)
Following the presentation, iREOC members formed into eight-person groups and discussed joint ventures from either the capital provider or operating partner perspective.
Throughout the day, members of iREOC were polled on their thoughts about the industry and the role of joint venture partnerships in real estate investment. In one instant response poll of meeting attendees, 83 percent of investors and investment managers said they would consider a recapitalization of their interest in a REOC partnership investment instead of an outright sale.
In another poll, 68 percent of investors and investment manager members of iREOC said they were willing to do entity-level investing. But while two-thirds of attendees were willing to make entity-level investments, it did not appear likely to attract the lion’s share of operating partnership capital. Members of iREOC were asked which REOC partnership model will attract the most investor capital flows over the next three years: 38 percent chose programmatic joint ventures, 34 percent chose specified-deal partnerships, 28 percent chose operator fund vehicles and 0 percent chose entity-level investments.