Those under 40 haven't been through anything like this
In challenging economic times, those in business look to corporate stalwarts for lessons on survival. In the CRE landscape, few have seen as much resilience as AEW.
“We’re active in the listed market, lead market, and the private equity market,” Mike Acton (pictured), head of research and strategy at AEW, told Mortgage Professional America during a recent telephone interview. “We have products that are both debt and equity listed in private. Those are all things that move in sort of a different cycle. They’ll go through the same broad cycle, but they do so with very distinctive timing.”
The takeaway here is diversity in investments. In plain English, the company hasn’t been one to put its eggs in one basket which has enabled it to thrive for more than 40 years, he suggested. “We have a very broad and stable business that is well-equipped to ride out cycles.”
Separating the wheat from the chaff
And hard times tend to separate the wheat from the chaff. In its fight against stubborn inflation, the Fed has been raising the interest rate. This has made borrowing money more expensive for lenders as money becomes less available because lenders have to lend money at a loss or raise their own short-term interest rates to make a profit on their loans.
That scenario sets the stage for proving one’s mettle: “What I would say is these times you go through really does separate the strong hands from weak hands.”
Strong hands were in motion for AEW in the aftermath of the Great Recession in 2008 as it was on the lookout for others’ portfolios. “One of the greatest periods of growth in our business is the period following the financial crisis, and the place where we grew the most, interestingly, was in the area of transferred asset assignments.”
He explained: “Client pension funds, foundation, allocate their money to investment managers. For the most part, these relationships tend to be long-term relationships, they tend to be very sticky relationships.”
Like virtually everything else during the economic meltdown, those relationships soon began to fray: “Following the financial crisis, we just had a rash of investors come to us looking for someone to take over portfolios of properties where either their existing manager had become impaired in some way or they simply lost confidence in them.”
Those under 40 are likely the most nervous, anxious
Having gone through that period yields institutional knowledge that guides future decision-making, Acton suggested. “Some people who have long track records – who have resources, stable themes, broad offerings – there’s a lot of benefit to that during these times of uncertainty and stress.”
Such dynamics become increasingly important for smaller managers, he said. “Smaller managers really get in trouble during these times because they get in a position where their own economics are upside down when these values go the other way,” Acton said.
Envisioning a surge of transferred assets this go-around too
The past may have been prologue: “I’m fully anticipating this period right not that there should be another surge of transferred assets – people looking for new managers, who have been cycle-tested,” he said, while expressing amusement at the nomenclature coming from tough times. “But there is truth to that if you’ve been there before,” he said of the “cycle-tested” term.
He expressed support for those navigating through today’s choppy waters without the benefit of having gone through the mill before: “If you’re under 40, you’ve never seen anything like this before, and it’s probably really causing you some anxiety,” Acton said. “But we have enough of the older people around.”
But he disabused those of the notion that today’s challenges are comparable to those of the Great Recession. “This is not that,” he said. “There are things that make it go more in that direction. But that was a scary time. I remember going home and not knowing if the bank would be open the next morning.”
AEW is one of the largest real estate investment managers in the world. According to its website, the company has more than 800 clients globally with $90.7 billion in assets under management across all property types in North America, Europe and Asia-Pacific.
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