LOS ANGELES—Need-based retail is the next “it” asset class for institutional investors, according to Chris Macke, American Realty Advisors managing director of research and strategy. Macke and his colleague, American Realty Advisors managing director of fund and separate account operations Jay Butterfield recently sat down with GlobeSt.com for an exclusive interview to discuss the company, investment trends and what we can expect to see from American Realty Advisors in 2015. Here is what they had to tell us:

GlobeSt.com: American Realty Advisors is an investment manager to institutional investors. Please describe your current investment strategy.

Jay Butterfield: As an institutional investment manager, we recognize that American has a responsibility to our investors as a steward of their capital and a partner in helping them achieve their goals in providing for their participants and beneficiaries. We seek to achieve those goals through risk-controlled investment strategies with an emphasis on the preservation of capital. Our core real estate strategies emphasize broadly diversified portfolios focused on stabilized income-producing office, multifamily, retail, and industrial properties in major institutional markets nationwide, and our value added strategies target quality potential assets and development opportunities in these markets, where our active management approach and extensive hands-on real estate expertise can provide added value to quality assets needing capital investment that will allow them to perform.

GlobeSt.com: Where are you finding the best investment opportunities now, and why?

Chris Macke: We view the major gateway markets, especially those that we identify as “innovation hubs” with strong demand from employers in globally competitive industries, as providing the best opportunities today. Although transaction activity in the small secondary markets has increased as some investors are seeking short-term yield advantages, the spreads between these less liquid markets and the larger metros is compressing, providing renewed opportunities in the major more liquid markets. For example, downtown Minneapolis multi-family was recently priced at only 30 basis points above a similar west Los Angeles transaction—a narrow spread between a primary and secondary market. Similarly, Atlanta office has seen cap rate spreads drop in half compared to primary markets.

We think primary markets such as New York, San Francisco Bay Area, Seattle, Boston, and to a lesser extent, Washington, DC and Los Angeles/Orange County provide better long term rent growth potential than their secondary counterparts, which is important as we believe in chasing long-term rent growth, not short term yields.

GlobeSt.com: What are the growth opportunities you see for institutional investors in the next 12 to 18 months?  Are there any emerging markets or industry sectors that these investors should be exploring?

Macke: While industrial and multifamily have benefitted the most to this point from a sustained move toward a more normal economic recovery, going forward retail, especially needs-based consumer retail, offers the most growth potential as it is the furthest behind and stands to benefit most from improving consumer confidence, improved employment, and wage growth. Office will benefit from near-term growth in professional and business services employment and the corresponding decrease in shadow space availability.

GlobeSt.com: Your firm also provides equity and debt investments. From your perspective, what are the major finance trends that will shape the commercial real estate market in the next 12 to 18 months?

Macke: Absent any market-disrupting geopolitical events, debt financing should remain plentiful while equity will likely continue to seek commercial real estate opportunities providing a favorable environment for financing. We see continued low interest rates for the next year, with any Fed increases being moderate. Mezzanine financing will increase, allowing buyers to achieve greater LTV and loan proceeds.  However, debt may come under increased pressure as borrowers gain further advantage due to increased availability and competition among lenders.

GlobeSt.com: What are your goals for 2015?

Jay Butterfield: American's primary goal is to continue to achieve high risk-adjusted returns for our investors with greater stability and preservation of capital. Seeking moderate and consistent returns with volatility lower than the benchmark has historically provided the best opportunity for outperformance over the long-term.  American will seek to accomplish this by maintaining the discipline to invest in markets and assets that offer the potential for superior, long-term income growth and that are competitively located in markets that can provide a favorable rent growth environment. We anticipate a positive environment for commercial real estate investment in the coming year that we believe can provide significant benefit opportunities to our clients' portfolios.