Commercial Real Estate in Cycle's Sweet Spot, Fund Manager Says

Keith Pauley, managing director with LaSalle Investment Management, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

LaSalle is a real estate investment management firm that invests solely in real estate.

Pauley discussed the potential effects of rising commercial property values on the market going forward.

“I think a lot depends on the direction of the macroeconomic environment,” he said. “At this point and time, we’re at a very favorable point in terms of real estate fundamentals, and we’re really kind of in a sweet spot in terms of the real estate cycle. The tone of this conference has been very positive; most of the companies are reporting very positive trends in terms of operating results. Most of the companies are able to borrow today on more favorable terms than their existing place of debt. I think, taking that together, the companies are in a very good place in terms of their earnings outlook, and I also think they’re in a good position to compete for acquisitions and grow their portfolios.”

Pauley described the REIT sectors that he finds most appealing in the current investing environment.

“We like the apartment sector,” he said. “The apartment sector has been out of favor for a long time now, I think coming up on 18 months, and there’s been a lot of concern about supply picking up and growth slowing¬—I think those concerns are justified, but they’re more than being discounted in the prices. We think now is a great time to buy some really good companies for less than the value of their real estate.”

Pauley shared his opinion regarding what the big story will be in the REIT market in the course of the next six months.

“If I had to guess, we’ll probably be talking about the impact of the changes in monetary policy,” he said. “And the same issue I just mentioned: whether stronger economic growth will be an adequate offset to higher interest rates to help REITs continue to perform.”