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Jeffrey Barclay ’83 is managing director and chief investment officer of Goldman Sachs Asset Management’s Real Estate Investment Group, Goldman, Sachs & Co. and an adjunct professor at Columbia Business School. Barclay is a Real Estate Circle Leader and member of the MBA Real Estate Program Advisory Board. He served as chairman of the 2011 Real Estate Symposium Steering Committee.
Interview conducted by Jeffrey Organisciak ’13
Please tell me about the Goldman Sachs Asset Management Real Estate Investment Group’s business model.
Our business model is to provide access to a wide range of real estate investments to the investment clients of Goldman Sachs. The Real Estate Investment Group (REIG) is part of GSAM (Goldman Sachs Asset Management). The business benefits from a wide range of resources throughout the firm. We are currently focusing on investments in the US and are utilizing both commingled funds and separate account vehicles.
Are you focused on any particular investment style, property type, or geography?
Our initial focus is on core, core-plus, and value-added investments in the major property types throughout the US. We have developed a target market analysis to assist us in identifying those markets that we think offer the best opportunities for return, without having yet been fully priced.
Given the uncertain economic environment, where do you think the best investment opportunities are in the market today?
The best investment opportunities in the market today are those locations and property types that have multiple sources of existing and potential demand. The lack of new construction over the past few years has created a situation where the current and imaginable near future supply situation is in relatively good balance. (A potential exception to this may be some multifamily markets.) Because of the favorable supply dynamics, we tend to concentrate on looking for demand. In this market environment, the best markets could include demand drivers such as education, medical services, government, and in some cases, manufacturing. We also see the return of the energy producing industries to the US as a potential opportunity. Areas where there is likely to be disproportionate job growth should present attractive investment opportunities.
Additionally, the disruption in the capital markets over the past few years has created attractive opportunities across the capital stack, and there are currently more vehicles to access those investments now than at any previous time. There are dedicated debt funds, active private equity funds, and so forth, which can provide access to these unique opportunities.
How have the real estate investment preferences of pension funds and other institutional real estate investors changed over the past few years, and what do they prefer today?
The real estate preferences of pension fund investors have fluctuated over the years. There has not been a prevailing long-term trend towards any particular asset class or investment style. I would say that the most apparent trend for pension fund investors is the legitimatization of real estate as an asset class. Pension funds now allocate specified percentages of their entire portfolio to real estate. Along with this trend, the needs of these investors have become more sophisticated. It is hard to generalize about specific real estate investment preferences: many prefer core real estate for stable income returns, but can sometimes find it difficult to get the pricing they want. On the other hand, some use real estate as a way to achieve higher returns than what may be available in other asset classes.
What are the most difficult challenges currently faced by real estate investment managers?
In these current times of uncertainty and volatility there is a premium for products that are liquid and have low costs. As a result, much of the growth in the investing world recently has been in ETFs, which satisfy these needs. The illiquid and high transaction cost nature of real estate is one of the most difficult challenges faced by managers in promoting direct investment with investors. However, the attractive opportunities presented at this point in the cycle are continuing to drive investment in the sector.
You chaired the steering committee for the 2011 Real Estate Symposium. What were some of the themes that you took away from the event?
I was very impressed by the turnout at the symposium, which was one of the largest ever. To me, this reflects a very high level of interest and participation among Columbia alumni.
One of the most important themes that came out of the symposium is that there are no glib answers in this market, and despite years of experience, many investors are still trying to figure out what to do. People who have been successful in the business for a very long time, such as Richard Saltzman, Joseph Azrack, and Dan Neidich are still trying to puzzle through some of the perennial questions that face investors: when and what to buy, what price to pay, how to structure the investment – and on and on.
Part of the uncertainty stems from the debate around whether the recent market downturn represents a cyclical fluctuation or a permanent secular change in the demand for real estate. For example, the invention of the elevator permanently changed the landscape of real estate by allowing developers to build higher than ever before. Have the recent explosion of communication technology and the rise of tele-commuting similarly created a new real estate paradigm with a permanently reduced demand for office space? Or is the real estate market just in the midst of a cyclical shift? Navigating these kinds of issues on an investment specific basis will be critical for investors, especially those who invest for the long term.
A positive takeaway was that the debt market is now functioning better than it has recently, although it still has much room for improvement. Also, the public equity capital markets have improved, and the REIT universe seems to be in decent shape financially.
What aspect of your experience as a student at Columbia Business School has been most beneficial to your career?
It is difficult to pick one aspect of my experience. I was at Columbia in the early 1980’s, and had not pursued an undergraduate business education. I believe that the comprehensive finance and accounting curriculum was very helpful to my early career in real estate. Also, maintaining close contact with the many Columbia alumni in real estate and other industries has been extremely beneficial.
As an Adjunct Professor you have interacted with many students in the Columbia Business School Real Estate MBA Program. What advice can you give current students on how to best take advantage of Columbia to position them for a career in real estate?
I would advise current students to become very actively involved in the Columbia Business School community. There are so many resources available to students: professional resources and guidance from the Career Management Center and Executives-in-Residence, the deep experience of the professors, the networking and leadership opportunities provided by the many clubs, and the knowledge and diverse perspectives of other students. Over the years, I have observed that the happiest students tend to be those who are very involved across all aspects of the program. There is no reason not to take full advantage of all the available resources.
As an adjunct professor, I feel that the best way for students to take advantage of courses is to be enthusiastic and have a strong work ethic. The students that make the most effort to make an impression, by active participation in class discussions and producing high quality work product, are able to stand out. Class sizes are small enough that students can get to know their professors. That connection, along with the close relationships fostered when students work together, provides the best learning experience.
Also, Columbia’s location in New York City gives students access to the senior leadership of American finance and industry. Taking full advantage of access to guest lecturers is very important. The opportunity that Columbia provides students to learn from and establish relationships with these leaders is incomparable.
You have been very involved as a Columbia Business School alumnus, what do you think are the best ways for alumni to get involved?
The Real Estate Circle is one of the best ways to get involved with real estate alumni. This includes the breakfast meetings, the Real Estate Symposium, and any other formal or informal activities organized by the Circle. These events give alumni access to the most recent research of the business school faculty and insights of alumni practitioners, as well as providing networking opportunities. Additionally, the school’s administration does an excellent job creating events and programs for the broader alumni community. Participating in these events is an easy way to get involved with alumni outside of real estate.
Also, this year the Real Estate Association initiated a Mentorship program. This program pairs Columbia Business School alumni with current students who are pursuing real estate. It is a great way for alumni to share their experiences and give back to the school’s real estate community.