On the final day of the Institute for Real Estate Operating Companies’ 2019 iREOC Annual Membership Meeting, held May 14–16 in Park City, Utah, members of iREOC continued to participate in a series of sessions and workshops that examined different ways real estate operators can interface with the broader institutional real estate market.
The “Investing in Programmatic Partnerships with REOCs Examined” workshop was moderated by Scott Stuckman, executive managing director of USAA Real Estate and included participants James Delmotte, chief co-investment officer at Grosvenor Americas; Michael Maires, senior real estate portfolio manager at the $32.7 billion Utah Retirement Systems; and Daniel Radek, co-president of First Washington Realty.
Unlike specified deal partnerships, which are developed on a one-off basis, a programmatic joint venture approach allows a more permanent relationship between partners. One of the panelists noted a benefit of a programmatic partnership is that it creates a pool of capital that can be invested according to particular parameters — “discretion within a box.” Not only that, but a longer-term partnership with a stable capital source means an operator does not have to spend as much time raising capital but can instead focus on operating a portfolio.
Operators in a programmatic joint venture with institutional capital need to understand their partner’s strategy and how to align their actions with that strategy, and then need to execute against that strategy.
One of the themes of the day was that institutional capital can be more demanding than other capital sources, with expectations for standardized reporting, which can require a robust back office from operators. It can be a challenge for operators to provide the necessary reporting requirements and to understand an institutional investor’s approval process, discretion requirements, fee structure and governance expectations. The trade-off, though, is that institutional capital can help operators scale in a way they wouldn’t otherwise be able to achieve.
The “REOC to Investment Fund Manager” workshop was moderated by Brian Malliet, co-founder and CEO of bkm Capital Partners and included participants Nishant Bakaya, CIO of CA Ventures; Owen DeHoff, partner of Jasper Ridge Partners; and Mitch Pleis, investment officer with the $234 billion California State Teachers’ Retirement System.
For operators, transitioning from deal-by-deal joint ventures to the investment fund model can also mean a transfer of discretion and control to the operator, noted one of the panelists. A fund can also allow an operator to take advantage of timing, providing a pool of capital that can be used to execute attractive opportunities.
One strategy for operators looking to raise a first fund is to start with a designated pool of assets. The REOC aspiring to be a fund manager can begin by buying assets before fundraising, and then transfer the properties to seed the fund.