Magazine article Journal of Property Management

Interview: Christopher Hartung

Magazine article Journal of Property Management

Interview: Christopher Hartung

Article excerpt

THE FUTURE SHAPE OF REITs

An interview with Christopher Hartung managing director and senior real estate analyst, Bank of America Securities, Inc.

JPM: What are some of the changes you think REITs will need to make to appeal to investors in the future?

Hartung: Ultimately, REITs and public real estate operating companies will have to decide what they want to be when they grow up. There is very little room in the public markets for gray areas. Therefore, to succeed a company must have a clearly defined strategy. For example, do you want to remain small and entrepreneurial or to develop the size and business structure to become a service company and garner the interest of major institutions? A smaller company can offer higher risk and higher return to investors and grow by recycling its capital. While a larger company will position itself to grow a little more slowly, it offers greater stability and liquidity. One strategy is not preferable to the other; rather the key is to chose one strategy or the other and stick with it.

The entrepreneurial model is fairly well defined because it is based on the operations of private real estate developers. The service company model is less apparent. It is unclear just how it will evolve over an extended period.

JPM: Why?

Hartung: In part, it is due to the dramatic changes in the real estate industry. Tenants are requiring more from their real estate, which necessitates a higher level of service. To compete, real estate companies must make the transition from solely bricks and mortar to the mind set of a service company. However, this is not going to be a smooth process.

Real estate companies have to find ways to differentiate themselves through service-not just by providing amenities, but by delivering what tenants expect from the product within the bounds they want. That is going to be the essence; it is no longer just building the property and then not thinking about it for eight to ten years.

For now, a strong economy and good real estate markets have given companies a decent environment in which to work. In markets in which same-store sales are increasing by 5 to 6 percent annually though, it is tough to tell how much growth is due to actual management skill. …

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