A recent CREW Chicago education program featured a Finance and Capital Markets discussion, looking specifically at Equity Perspectives. Next Realty Managing Director Eteri Zaslavsky was one of the featured guest speakers.
The moderator initially asked panelists whether it is harder to raise capital or to put it to work in today’s market. In helping to shape the consensus position of the panel, Zaslavsky said it is much more difficult today to put the capital to work, to identify and execute property acquisitions that make sense and can deliver on the projected investment returns established by Next Realty.
In further addressing market dynamics and challenges firms such as Next face today, Zaslavsky addressed the changing realities and expectations of investment returns. She noted that in one of Next’s earlier funds, which was launched in 2012, preferred returns (paid to investors before Next participated) were quoted at 9 percent, something that was achievable at that time. The current realities are returns on investments that may be more likely to produce a 7 percent return—a 200 basis point difference.
“That’s the nature of where things are today,” Zaslavsky said. “But given that differential, it is hard to make certain acquisitions work. We are still finding acquisition opportunities, but those properties that meet our criteria are harder to find.”
Zaslavsky noted that earlier in the year the firm sent out letters to the 90 investors in its active fund and noted some of the challenges associated with an investment strategy focused solely on retail assets. The letter identified an expanded fund acquisition strategy that could include industrial and medical office assets. Investors, according to Zaslavsky, were given the opportunity to remain in the fund or to opt out. Only two exercised the option.
Another topic for the panel was where to find deals, in a market where there is great competition ($150 billion in dry powder sitting on the sidelines).
“There is no shortage of deals out there,” Zaslavsky said. “However, 90 percent of opportunities generally come from 10 percent of your network.” One of the keys, then, according to Zaslavsky, is to build and leverage other relationships.
In talking about the competition in the market, and the challenges in sourcing acquisition opportunities, Zaslavsky said those same issues turn into benefits on the selling side. Next has benefited from this on several recent dispositions. On one in particular, “We have 90 confidentiality agreements from 90 firms, most of whom we’ve never heard of before,” she said. “They all seem to have money, so pricing is going to get competitive.”