ULI Chicago’s Under 35 members met in February and March for their annual Small Group Discussion Series. This year’s winter three-part speaker series titled “The 101 Series” featured top CRE executives from Cresset Partners, Origin Investments and CrossHarbor Capital Partners.

Each meeting provoked interesting insights regarding the current state of the CRE industry and provided an intimate setting in which young professionals learned about evaluating the risks and rewards associated with various endeavors, as well as how to approach the flexibility required within the real estate market. Below are summaries from each program.

Session 1: “Cresset Partners – Opportunity Zones & Community Development 101”
Matt Reilein, Managing Director of Community Development, Cresset Partners, joined ULI Chicago’s Young Leaders for the first in our Small Group Discussion Series to provide an overview of Opportunity Zones and Community Development. Matt who works with both the Cresset-Diversified QOZ Fund and Cresset Partners has a deep background in community finance and development and impact investing. He has spent more than 15 years forming relationships and building teams to deliver market-driven capital to low-income communities. He also currently serves as Chair of the Board of Directors of the Chicago Community Loan Fund and previously served on the executive committee of the New Markets Tax Credit Coalition and has been deeply involved with the CDFI Fund at the U.S. Treasury on market dynamics, so Matt brought a wealth of insight and knowledge to share.

The timely session focused on the investment opportunity that the over 8,500 Opportunity Zones across all US states, Washington DC and Puerto Rico have created. The program was created to encourage investors to reinvest their capital gains from any investment, whether that be stock, bonds, or real estate while also hoping to revitalize struggling communities with the potential for growth from the investor community. With these private market investments, we learned that investors can defer taxes on capital gains, reduce taxes by holding the investment and eliminate taxes if held for 10 years.

Session 2: “Origin Investments – Real Estate Private Equity Funds & Technology 101”
As one of the first employees at Origin Investments, Tom Briney, Director of Acquisitions, has been instrumental to the company’s unprecedented growth. Since its inception in 2007; Origin has grown from two investors to 650 and transacted $1B of real estate across three funds, achieving a blended 24% IRR for their investors. Focusing on multifamily and office assets throughout the US, Origin operates as a side-by-side investor with their clients, with the firm always being the largest investor in the fund. This investment approach is paramount to Origin’s principles – the interests of client and investment manager are aligned – and further demonstrates a belief in the investments Origin is making.

Origin Investments offers individual (accredited) investors access to institutional quality real estate, a concept that clearly is in favor with their clients (Origin has 92% investor retention). Creating headlines for raising $105m in 12 hours for their Qualified Opportunity Zone Fund last November, Origin is currently raising an ‘Income Plus Fund’, focusing on core plus apartment properties throughout the 10 markets they are currently covering.

The company differentiates itself from other real estate investment managers by focusing on education and transparency; creating industry leading content in the form of investment education, asset overview, and market analysis videos with an in-house production team. Additionally, Origin’s staff of software developers is currently beta testing an app so investors can easily track and manage their investments.

Session 3: “CrossHarbor Capital Partners – Real Estate Debt Strategies 101”
Richard Flohr, Managing Director and Portfolio Manager , CrossHarbor Capital Partners offered a comprehensive overview of the real estate debt fund market during Session 3 of the series. With debt often characterized as a mundane sector within the real estate industry, Mr. Flohr emphasized that debt funds have the capability to be dynamic and more complicated than many perceive. Mr. Flohr connected how high yield debt funds function by providing a recap on today’s real estate environment, a synopsis of the risk and return spectrum of the capital stack and a rundown on the attributes and advantages of real estate debt strategies.

The conversation began with examining the state of the overall real estate climate with three key questions presented:
– Is real estate overvalued, fairly valued or undervalued?
– Is the built environment over built, adequately built, or under built?
– How far do would you anticipate real estate values to go down during the next recession?

Mr. Flohr indicated that the overall market suggests real estate is fairly valued, the built environment is under built and real estate values would not be anticipated to decline more than 10% during the next recession. With these assumptions in place, along with the prediction that long term interest rates will remain low, the debt fund world has become in fashion given the opportune environment to achieve better risk adjusted returns as compared to other investments in the capital stack.

Further, Mr. Flohr discussed the strategies of debt funds with a focus on Core Plus and its ability to generate equity like returns. While all lenders place a fundamental emphasis on the borrower, basis, location and tenant(s), Core Plus funds seek opportunity in several additional areas, one of which being event risk. For instance, CrossHarbor Capital Partners recently provided financing for an office building located in a high performing submarket of St. Louis, Missouri anchored by a national law firm with a near term lease expiration.

As lenders continue to search for similar investments in a growing field of competitors, Mr. Flohr provided a piece of wisdom that applies to the debt fund industry and the entire real estate sector. Distinguish yourself by execution, be someone others want to work with.

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Thank you to our contributors Amanda Gray, Heitman LLC; Jack Maloney, Moran & Company and Jaron Kleiman, Shapack Partners.

ULI Chicago Small Group Discussion Series events are designed to provide ULI Chicago Under 35 Members with intimate opportunities to learn from the some of the top individuals and firms in the Chicago CRE scene. Interested in attending? Stay tuned for more Small Group Discussion Series events coming in Fall 2019.