For those of you who attended our annual meeting, which was held in London on May 9th, you will know that we spoke in some detail about the three main pillars of our investment strategy: vertical integration, thematic investing and operational enhancement. Of course, we’re always keen either to challenge or to support further our own assumptions and strategies, particularly when confronted with new information or by the opinions of people we respect.
Lucky for us, only two weeks after the annual meeting, we were able to add further support to our increasing focus on operations as a means of creating and sustaining a competitive advantage. Mike and Adam attended a conference put on by Wharton’s Zell/Lurie Real Estate Center where an extremely well-respected figure in the property industry spoke about his decades of experience investing in the UK and Continental Europe, and about his current views on the future of the real estate investment market.
The primary takeaway sounded strikingly familiar to what we’ve been telling our investors: real estate investors, he maintained, will need to have operational expertise in the future, as occupiers across asset classes look more and more to reduce their exposure to long term real estate commitments. He went on: for too long, the UK office market has been “the culture of the bondholder” and while “long [leases] used to be good, now short [leases] will be good”. We should therefore expect the market will start to understand the benefits of owning well-managed and multi-let assets with shorter duration income profiles, in comparison to single-let, long duration assets with potentially high degrees of functional obsolescence.
Even more importantly from our perspective, he suggested that while larger publicly traded companies may have the financial resource and breadth to take on more operational businesses, they may not necessarily have the culture necessary to adapt to this new, more operational and entrepreneurial landscape. He continued by saying that in the future a private equity-like mentality is going to be important, and the firms that can attract and retain the best talent will be the ones that will be able to compete in this more operations focused landscape.
Often at these events market participants disagree with us (and that is why we like attending them), but it was also a nice (and timely) surprise to find such common ground with someone we greatly respect. We continue to seek out and judiciously build operational expertise along particular business lines while still relying on the asset itself to be the driver of our target returns. We are happy to speak in more detail about our specific strategies to those with interest.