Jack Koch
A group of CIOs pointed us toward Jack Koch, one crediting Koch for nudging his trailing real estate portfolio into the top quartile. In finding his opportunities, Koch seeks the magic balance: strong managers with a relevant strategy, transparent communication with investors, a tremendous seed portfolio, and the ability to leverage relationships and gain a preferred fee schedule. He then measures opportunities within the context of an individual portfolio’s goals, and confines and advises pension plans such as the Florida State Board of Administration the New Mexico State Investment Council, Missouri PSRS/PEERS (Missouri State Teachers) and New York State Common Retirement Fund. Recommended investments often involve specialist, vertically-integrated operators, such as those with a niche expertise in a particular property type or geography (e.g., retail, self-storage, senior housing), because they’ve “grown up in that particular market or property type,” said Koch, “they can leverage that specialist knowledge for their investors.” It’s where Townsend has seen “tremendous success,” he said.
After a degree in international business, an MBA, a mergers and acquisitions PNC banking stint (and time spent volunteering and working in the retail sector of Latin America,) Koch started his real estate consulting career at Townsend in 2006 with a focus on Latin America underwriting. He was attracted to the company’s ability to seek strong global investments, as well as investors “without blinders” to geography. He has seen quite a few changes in the past 12 years as real estate portfolios have evolved, now including alternatives (e.g,. student housing, self-storage, and medical office) in addition to the four basic holdings of office, industrial, retail, and multifamily. The investment industry, he said, has also learned from mistakes leading into the Global Financial Crisis, and become more accustomed to a somewhat more risk-adverse investor base.
When asked what property type is currently hot, Koch said, “We continue to see interest in industrial, with much of that coming at the expense of retail.” Yet, if you were to indicate a desire for industrial exposure all costs, Koch explained, “I would advise you not to throw a net across the global market and take anything and everything you could.” He further said, “We need to be tactical at this phase of the cycle and understand particular risks associated with each investment we may make, regardless of the sector’s recent performance.”
Townsend is also watching the millennial trends, notably: of millennials surveyed, 62% indicate they prefer to live in urban areas—and they’re living in them at a higher rate than any other generation, according to a Nielson report. This large cohort with buying power is attracted to urban areas that aren’t necessarily the largest cities, but rather, places “where people can literally live, work, and play within that environment,” says Koch, and so retailers with large online presences such as Warby Parkers and Vineyard Vines are setting up brick-and-mortar shops in the areas where millennials migrate. “Those areas could certainly be on the investment radar; however deal specifics also determine the ultimate conviction in an opportunity,” he said.
One recent investment that paid off for Townsend clients, including Koch’s, was a new core plus, open ended structure: multi-family, suburban, garden-style apartments, primarily located in Southeast growth markets, sponsored by a specialist, vertically-integrated, multi-family manager. In addition to the 10 initial seed assets offered to founding investors at a significant discount to current market value, the vehicle provided perpetual asset management fees at approximately 50% of the going OECF (Open End Commingled Fund) rate (Townsend was also successful in eliminating the catch-up). The investment resulted in a high-single-digit, net-of-fees first-quarter return, against the NFI-ODCE (the NCREIF Fund Index – Open End Diversified Core Equity) which produced a corresponding 1.8% net return over the same quarter.
Over the course of the next three to five years, Koch believes core returns will be “becoming much more normalized: perhaps 6% to 8% net returns;” thus, given where we are in the real estate cycle, “net-of-fees performance is becoming even more important.” “If you can shave off fees from that, and have a net return increase 75-80 basis points, “that’s going to be meaningful over the longer term,” he said.
In late 2017, Townsend was acquired by Aon, and now the two companies have combined assets under advisement of over $200 billion. “The Townsend platform gives us an edge: I can rely upon our sector experts, located in our global offices, that cover each and every property type, and then communicate that information openly and honestly to our clients,” Koch said. “We’re trying to ensure the beneficiaries have their retirements, and that, to me, is important.”
By Christine Giordano