Sometimes that mission – of doing good and doing right – is met with mixed results. Allan Emkin, managing director of Pension Consulting Alliance, said his first reaction is "gag" when someone brings him a double-bottom-line project. "The first responsibility to my client is to pay pension benefits. When I get (double-bottom-lines), they're selling the 'benefits' not the investments."
That doesn't mean they can't be profitable. Shamrock Capital Advisors Inc., and its Genesis Fund, has specialized in double-bottom-line projects. The fund has targeted rundown areas with strong success. A retail project in Carson, CA saw the repositioning of South Bay Pavilion, which had been a traditional, enclosed single-story mall. In a joint venture with Hopkins Real Estate Group, the developers relocated existing tenants, demolished 135,000 sf and replaced it with a 142,000-sf Target, according to Shamrock managing director Daniel Beaney. Another project, Agua Mansa Industrial, created 2,400 new jobs.
As Beaney said, the double-bottom-line funds, which kicked off around 1999, have had strong returns. But they originated in a different spot on the market cycle. "We were selling a lot of our (early projects) into an up market," Beaney said. "It will be interesting to see if they will generate those returns in a more mature market where you have cap compression."
Cushman & Wakefield senior director John Troughton has become a specialist in property inefficiencies and believes that niche in the market is a growing problem within commercial real estate circles. At another discussion during the Milken conference, Troughton said that the inefficiencies being faced could lead to terrible consequences.
"There are 4,100 closed plant sites in the US right now. Those are assets that need to be re-allocated," noted Troughton. He said the question becomes: "Do we worry about those 4,100 sites, or begin worrying about the next 10,000 that will be closed as those jobs are outsourced to China?"
According to Troughton the major culprit with these inefficiencies originates with the issue of over-cross-collateralization. He said what too often happens is that a private equity firm will acquire a bundled portfolio. The firm wants, say, two of the sites, while the other 10 lay dormant, for years.
What Troughton does is team with private equity firms looking for possible solutions to enhance the value of the closed sites. Since 2000, he and his partners paved the way for more than 1,000 units of entitled housing and are on tap to generate $1 billion of investments to local municipalities. More often that not, though, the sites go unnoticed, in particular, by lenders. The portfolio's been paid for, "so they never miss a payment," said Troughton.
"The community is who gets hurt in these situations," he added. "When a plant closes down, you see a market failure. There are people looking for jobs, but no place to go for a new job. And there's no new use for the old, sold property."
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