The Pension Real Estate Association held its fall family reunion last month in Chicago, and nearly 1,000 members of the family decided to attend. The atmosphere was upbeat, and everyone seemed to be having a good time. The conference room was always filled, but there was also a continuous buzz of voices coming from outside the conference room as delegates ran into colleagues they hadn’t seen in a while. Stories were exchanged, gossip passed around, and good-natured teasing seemed to be the rule of the day. One of the panelists stated, “The vast majority of the people in the industry are in great shape.” Judging from the interactions at the receptions, at meals and during breaks, I’d wager that he was right.
The event was hosted by three LPs: Amy Diamond of Northwestern University, Michele Everard of the University of Michigan, and Verna Kuo of the William & Flora Hewlett Foundation. When Micolyn Magee, PREA chairman and Townsend principal, presented the PREA scholarship winners, there were four women presiding over the stage. When has that ever happened at an institutional real estate conference before?
PREA is noted for having topical dinner and keynote speakers. I don’t think anyone can top Michael Milken and Bill Clinton, who spoke at the 2012 fall conference, but former Treasury secretary Tim Geithner (who was interviewed by Martin Wolf of the Financial Times) and former presidential senior adviser David Axelrod certainly held their own. Whether you agree with them politically or not, the behind-the-scenes looks they presented were funny, disquieting, insightful, banal and fascinating all at the same time (and, unfortunately, not to be quoted at the request of PREA).
PREA conferences are also notable for the opposing views they put on panels — and the willingness of panelists to disagree. The first panel of economists was no exception. Adam Posen, president of The Peterson Institute for International Economics, and David Rosenberg, chief economist and strategist at Gluskin Sheff, found little to agree on when discussing economic stimulus and whether the government’s intervention has been beneficial. Suffice to say Posen is a fan, Rosenberg not so much.
The CIO panel featured Andrew Ward from The Boeing Co., the third largest corporate pension fund in the United States, and Erik Lundberg from the University of Michigan. Both groups are huge investors, but the pressures are different. As Ward stated, “Being high on a list of endowments is a good thing because it means you have lots of capital. Being at the top of a list of pension funds is a liability most corporate execs would rather not have.”
Because of the recession, Boeing went from being 124 percent funded to 85 percent funded within just two years. Ward noted that the current pension fund structure in the United States is unsustainable: “We need to change how we manage these plans. You simply can’t increase assets enough to cover the liabilities.”
The panel on investing in Europe was composed of a group of opportunity players, and they are very happy with the opportunity they are finding across the pond. The panel — Ken Caplan, senior managing director and head of real estate Europe at The Blackstone Group; Jeffrey Dishner, senior managing director, acquisitions at Starwood Capital Group Global; Ron Kravit, senior managing director at Cerberus Capital Management; and Aref Lahham, managing director and founding partner at Orion Capital Managers — all agreed that Europe is the place to be. “2012 was our best year ever,” said Caplan. “2013 will be even better.”
Panelists like the prospects for northern Italy and some of the other distressed areas such as Lisbon. Interest in Spain is almost mainstream, but Russia is still pretty much a no-go zone. “Life is just too short,” explained Lahham.
Heard from the stage and in the hallways:
- “It used to be that the economy drove the markets; now the markets drive the economy.”
- “Only 61 percent of prime age workers are in the workforce. Something has gone very wrong with the U.S. workforce.”
- “The Fed wants some inflation, but it’s wishful thinking to think they can control it once it gets going.”
- “If you are thinking of financing, I wouldn’t wait until 2016.”
- “Should we be buying class A office buildings in Europe — or tear gas masks?”
- “I’m not worried about social unrest in Europe. The real problem is taxation. Tax treaties are changed all the time. This impacts returns in a meaningful manner.”
- “Emerging markets — watch out for private-sector debt ratios.”
- “Government dysfunction is very hard to model from an investment perspective.”
- “When it comes to Europe, invest in beer-drinking countries and avoid wine-drinking countries.”
- “In the U.S., you can turn up with the biggest check and you win. The biggest check doesn’t always win in Europe. Trust and long-term relationships are much more important.”
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Sheila Hopkins is managing director – Europe and infrastructure with Institutional Real Estate, Inc.
