BSW recently held one of its marquee “Meet the Manager” events at the City Club in Boulder, CO. The manager, Harbor Group International (HGI), has been a trusted private real estate advisor to BSW for over 12 years and with whom BSW has partnered with in 180 real estate investments.
Topics discussed included economic outlook, recent sales activity, sustainability initiatives, and promoting healthy lifestyles amongst residents and tenants.
“Last year when we held this meeting the 10-year Treasury yield stood at 3%,” said Saul Lubetski, Vice Chairman at HGI. At that time, improving economic conditions in the United States made higher interest rates all but a foregone conclusion for the year ahead. However, history often unfolds differently than consensus expectations. “Today the 10-year yields 1.96%,” continued Mr. Lubetski. With bond yields so anemic, income producing real estate investments become more attractive by comparison, a dynamic he sees continuing into 2015.
Lubetski also sees further improvement in the apartment market as would-be homeowners, particularly in the Millenial generation, place a premium on flexibility and mobility. While this is a longer-term trend, HGI sees short term factors that could help move rents upward. Falling oil prices have already translated to lower prices at the pump, which should increase discretionary buying power. Meanwhile, the growth in the supply of new apartments nationwide has trailed the increase in demand.
“There are really only 3 office markets that have institutional-quality liquidity in the United States,” said Lubetski, “New York, San Francisco, and Washington DC.” These gateway cities present high barriers to entry and have significant pedestrian and transportation infrastructure. As the economy improves, both occupancy and rents have increased in these markets. He sees the low level of new office construction providing a tail wind for continued improvement in the economics of owning office properties.
Regarding retail space, Lubetski remarked, “The retail environment has shifted. B and C (rated) malls in America are dead.” HGI sees value in irreplaceable retail locations with high foot traffic. Of retail preferences among consumers, Lubetski added, “People are looking for an experience, a tactile experience.” Sam Fireworker, Senior Financial Analyst in HGI’s New York office, highlighted new retail acquisitions in locations such as the DuPont Circle in Washington DC, Kings Cross in London, and Chelsea, Harlem, and the Bronx areas of New York City.
Discussing the sale activity in BSW’s portfolio across all funds and properties, Samuel Reichman, Managing Director at HGI, characterized 2014 as “another robust year for distributions,” selling 18 properties in which BSW invested, including several pre-recession vintage assets. BSW investors received over $12M in sale proceeds in 2014 and, “2015 is anticipated to be another positive year for dispositions,” added Reichman.
It should not go unnoticed that HGI has made a significant commitment to expanding its sustainability initiatives. Robert Friedman, President of Harbor Group Management Co, explained how HGI has embraced sustainability by focusing on four key initiatives: Engage, Reduce, Innovate, and Conserve. “We have gone paperless with the vast majority our vendor payments and invoices and at our apartments, over 70% of the residents pay using ACH (electronic funds transfers),” he added. These initiatives and the myriad of equipment upgrades designed to increase energy efficiency at HGI-run buildings yield benefits for both the environment and the bottom line.
Healthy living is simply a part of making life better. HGI has embraced this concept at its apartment properties and offices by expanding the “Harbor Fit” concept. “Essentially we are raising the profile of the fitness opportunities at our properties,” said Friedman, as he shared the details of a 12,000-square-foot fitness facility HGI installed in the lobby of its iconic One South Wacker office property in downtown Chicago. “In the first month alone, 600 employees in the building signed up for memberships,” said Friedman. On biking to work he added, “At many office properties we not only added bike storage, but also shower and locker room facilities to make commuting by bike more feasible.”
All in all, we were very grateful for the opportunity to hear from HGI firsthand and are looking forward to our continuing partnership.
– Elias Bachmann, Director – Private Investments
– Meera Meyer, Associate Advisor