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TRANSPARENCY, ALIGNMENT BUILD GLOBAL SYNERGY groups which are looking for value-add and opportunistic returns need to partner and venture with groups that have a fee and waterfall structure that is set up accordingly to achieve those objectives.” Graham Stephens Managing Director HFF Securities Embarking upon joint venture is like boarding Noah’s Ark: The key is to enter paired with someone whose interests closely resemble your own, advises Graham Stephens. “Groups with a long-term yield perspective need to partner with other groups with a long-term yield perspective that are not being incentivized through fees or necessarily through promotes,” suggested HFF Securities’ Managing Director, “whereas 12
These days, that means more than simply bringing in new capital and moving on. “It’s about making sure that the senior teams of both groups are also aligned as to what their objectives are,” he explained, “then executing the business plan that they sold. We’re seeing that theme throughout the country.” Establishing a beachhead is another common theme, where groups come to the United States and partner for three to ten years, then employ the specific market, product type or strategy knowledge and experience that they have gained to bring that expertise in house and create their own operating platform. “That takes total commitment, because bringing in people, taking on overhead and relying on your own local market experts
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entails a serious capital and personnel investment,” Stephens observed. “The more traditional global domestic joint-venture approach which melds a partner’s relationships and local market knowledge with your capital also works.” One of the biggest trends to bolster the proliferation of new joint ventures is disclosure. “There’s an increase in transparency in terms of what’s expected: How the venture works. How individual deals, governance, fees and potential promotes and controls are aligned,” he underscored. “We’re witnessing a lot more transparency going forward than we have hitherto seen among global allocators, who invest in many different funds, vehicles and ventures. That openness is healthy for the market.” Stephens noted that China remains a powerful magnet, despite the prospect of an impending trade war, and other capital constraints. “American and other global groups are very interested in investing in China, simply because of the growth prospects there,” he concluded. ■ Robert Frank Canadian Real Estate Forum / WINTER 2018