Steve Peacher: Hi everybody thanks for dialing in to this episode of “Three in Five” this is Steve Peacher head of SLC Management. Abbe Borok who's managing director and head of U.S. debt at BentallGreenOak has agreed to join us today, so Abbe thanks for taking a few minutes.
Abbe Borok: Thanks for having me Steve it's great to be here.
Steve Peacher: So, we want to talk about the real estate debt market, which is where you spend your time and there's a lot of cross currents because on the back of the pandemic you've had you know some areas of the real estate market be on fire, like industrials and some areas under pressure, like office. Now we've got rising interest rates which can impact real estate values, can you touch on what you're seeing in the market, where as you and your team looks at the platform that we've got where you're finding opportunities, what are you looking at, what are you seeing?
Abbe Borok: Sure well Steve, as you know BentallGreenOak has about $74 billion of assets under management today globally and we're singularly focused on real estate. And of that $74 billion about $17 billion is debt today and our global debt platform spans the U.S., Canada and Europe. And we really have two main products, the first is our core mortgage business where we're outsourcing underwriting and asset managing mortgages on stabilized assets. And those are generally CM one and CM two loans on behalf of insurance companies. And the second strategy where we are increasingly active and see a lot of growth potential is in the value-add lending space. And by ‘value add lending’ we're talking about originating loans to institutional owners and operators who are buying commercial real estate assets, with a plan to invest capital, create value through a business plan of upgrading, renovating, developing or redeveloping a commercial real estate asset. And why do we particularly like the value add space? Because we're in a very defensive position in the capital stack investing behind a very high quality blue chip sponsors who are creating additional value cushion as they see their way through these investments. We really see this transitional and value add lending as the sweet spot in the U.S. real estate debt markets today.
Steve Peacher: So, as I mentioned at the outset, the real estate markets come through a lot in the pandemic, certainly for equity owners of real estate. As a debt investor in real estate, how has that impacted, when you're looking at the portfolio that you've got, how has the debt investor in real estate been impacted?
Abbe Borok: So, in many ways covid has accelerated trends we were already seeing in the commercial real estate markets, driven by technology and changes in consumer preferences. So, we are very focused on those trends in our real estate debt business, and this is where we're being part of a large real estate specific platform like BGO, where we're all focused on having our finger on the pulse of the real estate markets, is powerful. We're really tracking what is the future of real estate across the different types of commercial real estate properties – multifamily, industrial, office, life science – and being very forward thinking about how we adapt our investment strategies to meet these changing use cases. And I’d say as someone who spent my career in real estate debt lenders are often very backwards looking. So, what are the historical cash flows, what is the credit of the tenants at the property today, how is the property been used historically? But we're super focused at BGO about this concept of the future of real estate and I can provide three ways this comes into play in our investment strategy on the debt side. So, we focus on the evolution of innovative real estate asset classes like life science properties, single family rental, cold storage. Two we ensure that we're on the forefront of sustainability initiatives on some of the more traditional asset classes like office or multifamily. And thirdly, we continue to invest in our data and analytics and AI capabilities to make sure we understand which markets, sub-markets and frankly specific assets will still be relevant 5, 10, 15 years from now, as, as we have this increasingly rapid pace of change.
Steve Peacher: You know, I find it interesting when I think about institutional investors and real estate debt because you've got segments like insurance companies, for this real estate that's been a core part of their portfolio and their balance sheets forever. And then you've got say pension funds where it's more of an emerging asset class, you know. So, as you're out talking to clients and talking to prospects, why do you see institutions being interested in real estate debt? How does it play into their asset allocation? What do you hear from the institutional marketplaces you're out talking about the asset class?
Abbe Borok: Yes, so two things we’re hearing are at the forefront of our investors’ minds are the macro volatility and inflation. But also, while rates have gone up some there's still a pretty consistent need for yield above and beyond what investors can find in their traditional fixed income portfolios. So, part of our opportunities that we see on the real estate debt side, particularly in the U.S. is we're still benefiting from the dynamics that make real estate an inflation hedge where we have the ability to pass through increases in rents, particularly on the residential and industrial side. But also benefiting from some increases in rates as we're making floating rate loans. So as we look across the real estate asset classes and we're most focused, as I said on residential, industrial and logistics, life science, we still believe those asset classes have legs in the U.S. So, you can invest in the U.S. in a real estate asset class that's an inflation hedge in a very defensive attachment point in the capital stack. And I think we've continued to hear that that's an interesting proposition from investors when they're looking at U.S. real estate debt either to your point as a way to boost yield in their fixed income portfolios with really strong downside protection or they’re benchmarking to the real estate equities markets and want something that's going to really be a cross-cyclical product.
Steve Peacher: Well, this is a huge area of the markets and I think we're going to continue to see increased allocations, as you say it's a source of potentially inflation protection, diversification, attractive yield, etc. so it'll be interesting to see how it plays out. I like to ask a personal question at the end of these so, I know you are really good lacrosse player growing up and in college, so I have two questions: one is give me one of your favorite memories from your lacrosse career first and then now you know now what do you do stay active?
Abbe Borok: Favorite memory of my lacrosse career would have to be my senior year in high school when I was captain on my lacrosse team and was able to take our team to championship there. So that was a big, still I’m still friends with many of my members of that team and I think that's a consistent, great aspect about sports is just the bonds you form with people on these on these teams. That's a great memory. Unfortunately, I have retired my stick at this point, but I actually try to carve out time to be active and spend quite a bit of time actually on the golf course. I really like love golf. I would say real estate is a great way to connect, I found with women in the industry spending time. So, there’s actually I think a misconception of golf is that it's kind of a guys game, but I think that there are a lot of women out there that play and I found it a great way to connect with women in the real estate industry, which is one of the ways that I use it as well. I also have an almost six-year-old daughter, so I put a club in her hand so hopefully she'll be a little bit improved than her mom was having picked it up at a later age. Haven't given one to my three-year-old son yet, I think that would be a dangerous proposition, but maybe sometime soon.
Steve Peacher: Hold on you put what golf club in her hand and not a lacrosse stick? Come on.
Abbe Borok: Yes, to start, to start.
Steve Peacher: Well, I think there's a lot of analogies and comparison you can make between team sports and investing, so I think we're in a team sport right now, which is great.
Abbe Borok: That’s how we feel at BGO.
Steve Peacher: Thanks for taking a few minutes, I think that the real estate market is an area that people don't necessarily know a lot about, but I said it's a huge market and it's a really important area for BGO and so thank you for taking the time I appreciate it.
Abbe Borok: Thanks Steve.
Steve Peacher: And thanks to everybody for listening in.
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