Large Institutional Investors Consider Smaller Buildings In Chase For Yield

Transwestern's Steven Orchard Shares Insights in "Ask the Expert" Publication

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Jan 20, 2015, 01:13 ET

HOUSTON, Jan. 20, 2015 /PRNewswire/ -- As competition remains strong for core product in top-tier markets, large institutional investors are considering alternate strategies as they search for yield, according to the first-quarter edition of "Ask the Expert," featuring Senior Vice President of Structured Finance Steven Orchard. In this edition, Orchard elaborates on an emerging investment strategy in today's low-yield environment and gives advice to small building owners on how to attract large institutional investors.

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Pricing on smaller transactions – those with a total capitalization for $5 to $20 million – can be less efficient, which translates into opportunity for disciplined bidders. For these deals, there is a larger ratio of transactions to investors, competition isn't as fierce and the supply of capital is more modest. Traditional small-deal buyers are less consistent in their strategy, investment appetite and capital availability, providing large investors an opportunity to unearth value.

Institutionally managed investor groups will only be willing to chase smaller deals if the risk adjusted returns are compelling. Land development and construction transactions work well, as they seed bigger projects, although standalone small-deal investments can attract institutional capital if the execution is clean and whole dollar returns are exciting. However, the phenomenon of large investors doing small deals is thin, selective and perhaps fleeting.

Institutional investors venturing outside their comfort zone will focus on relationships first, so small-deal players are advised to develop capital relationships before they are needed. Additionally, small building owners should tell a good story with respect to the acquisition narrative, summarize the due diligence and pursue a repeatable strategy if at all possible.

"Ask the Expert" is a Q&A with Transwestern experts and leaders. Download the full version at twurls.com/ate-orchard.

ABOUT TRANSWESTERN
Transwestern is a privately held real estate firm specializing in agency leasing, property and facilities management, tenant advisory, capital markets, research and sustainability. The fully integrated global enterprise leverages competencies in office, industrial, retail, multifamily and healthcare properties to add value for investors, owners and occupiers of real estate. As a member of the Transwestern family of companies, the firm capitalizes on market insights and operational expertise of independent affiliates specializing in development, real estate investment management and research. Transwestern has 34 U.S. offices and assists clients through more than 180 offices in 38 countries as part of a strategic alliance with Paris-based BNP Paribas Real Estate. For more information, please visit transwestern.com and follow us on Twitter: @Transwestern.

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SOURCE Transwestern