Hidden Among High Valuations, Niche Real Estate Opportunities Abound | Exclusive Q&A With Caixia Ziegler, Ford Foundation
Caixia Ziegler is an associate director and the head of real estate at Ford Foundation. Previously, she was the director of global real assets at the National Railroad Retirement Investment Trust, where she oversaw public and private real estate, timberland, upstream energy and other real asset investments. She holds an MBA in finance from Wake Forest University and a bachelor's degree in international business from Xiamen University in China.
Ms. Ziegler was named on Trusted Insight’s 2016 Top 30 LPs Investing In Real Assets & Real Estate. She graciously spoke with us on November 6, 2016.
Trusted Insight: How did you get started in the institutional investing?
Caixia Ziegler: After graduating from business school, I went to work for Carrier Corporation, a division of United Technologies Corporation, in their financial management development program, a rotational program for business school graduates. I did three different finance assignments during a two year period, followed by working in the treasury department at United Technologies doing forex trading. After about a year, I joined the pension investment department as a senior analyst focusing on equity investments. So, that's how I started working institutional investment management.
Trusted Insight: How does your experience in pension fund investment compare to your current role at the foundation?
Caixia Ziegler: When I started, I was a generalist. While I was focusing on public and private equity investments, I was doing lots of research as an analyst. I gained really good experience by learning from my more experienced colleagues as well as from meeting with a lot of investment managers. Going to the National Railroads Retirement Investment Trust opened up the opportunity for me to finally select an area to focus on, which was real estate initially and then real assets.
Different types of institutions can have very different investment styles. For example, when I was at United Technologies' pension department, we had only three or four real estate managers and they were mainly separate accounts with core/core-plus mandates. At the National Railroad Retirement Investment Trust, I built a diversified global portfolio of public and private real estate investments, with a lot of private partnerships doing value-add and opportunistic investing. At the Ford Foundation, our portfolio is more concentrated with mostly property sector specialist managers.
Trusted Insight: In terms of that experience at National Railroad Retirement Investment Trust, what appealed to you about working in real estate?
Caixia Ziegler: When I joined National Railroad Retirement Investment Trust, it was a fairly new organization: the investment team had started investing in equities and bonds, but they didn't really invest in alternative assets. When they decided to explore potentially investing in real estate, I was fortunate enough to be there and to have done (I assume!) good work. So, the chief investment officer gave me an opportunity to do research on the real estate asset class. Real estate is a really fun, very tangible and inefficient asset class. There are many areas that a manager can add value and generate really attractive returns. There are many talented and entrepreneurial managers and a deep opportunity set, especially in the United States. That’s what attracts me to investing in real estate.
Trusted Insight: Within real estate, what areas are you currently interested in?
Caixia Ziegler: Overall, I think the real estate sector has pretty high valuations. So, we have been very cautious in making commitments. We mainly invest in the major property sectors. I find the industrial sector really interesting. It’s benefiting from the secular growth in e-commerce, which has really changed how people shop and what kind of retail is relevant. I am still looking for a great industrial specialist manager; there are not a lot of institutional managers focusing on the space.
Trusted Insight: How are you negotiating around over-valuations in terms of your portfolio?
Caixia Ziegler: We are very focused on finding managers who not only have investment and operating expertise, but also have strong investment discipline. Managers who are not just going to go out and buy stuff because they’ve raised the capital and now they feel that they need to deploy it and then they can raise even more capital. We want managers who are focused on delivering returns to investors, protecting the downside and are not in the asset gathering business.
Trusted Insight: What do you think the outcome of this over-valuation in the market will be? How might it compare to the crash in 2007?
Caixia Ziegler: I'm not sure we will be in a situation like 2007 because every time is going to be different. However, I do think we will see some sort of correction. We have had tremendous growth and valuation gains, and it's very hard for that to continue without a very strong economic growth scenario. In certain markets where there is a lot of new supply, for example NYC, we are already seeing that. There are a lot of rental concessions across office, retail and apartment sectors. Hotels in NYC have had a hard time raising rates for the past three years, while costs of running hotels have increased significantly.
Trusted Insight: Do you look outside the U.S. for your real estate investments or are you primarily focused on the U.S. market?
Caixia Ziegler: We primarily focus on the U.S. market. We do look at opportunities globally, however, we want to be compensated for all additional kinds of risk, for instance, currency risk. Frankly, there are not a lot of places we feel like we would really be compensated for those risks. The U.S. real estate market is the largest and most liquid market in the world with a very deep opportunity set and a lot of talented managers. Overseas, there are not a lot of markets where you can really say, “It's cheap, there are lots of great opportunities.” We just don't find that.
Trusted Insight: You mentioned that you investment outside the United States. Are there any particular pockets where you think you can find inefficiencies in the market?
Caixia Ziegler: I think you can always find real estate opportunities just because overall it is a really inefficient asset class. Outside the U.S., there can be some attractive buying opportunities in Europe due to heightened political uncertainty as well as less capital demand for assets with issues. Brazil can be interesting, but they still have a lot of problems. If I can find a really great manager, I can see us potentially investing there.
Trusted Insight: You mentioned you were quite particular in selecting managers -- how do you approach that?
Caixia Ziegler: We really like managers with real estate operating expertise in a particular property sector and/or market. A manager with local market knowledge and relationships can find better deals. And a good operator can add more value at the property level. We look at the managers’ track record, how they added value in the past and whether they have made great investment decisions in selecting when, where and what to invest in. We also look for investment discipline and alignment of interests. We have a very concentrated program, and we don't want to select a lot of managers. So, we're looking for those few really special investment managers who have all of the above.
Trusted Insight: How does your team play into making those investment decisions?
Caixia Ziegler: At the Ford Foundation, I am responsible for identifying potential new investment managers and doing due diligence as well as managing our existing real estate portfolio. I meet with a lot of investment managers and spend a lot of time doing due diligence on the managers who have the potential of meeting our criteria. In the later stage of my due diligence process, I would invite my colleagues to meet with the investment manager’s team. Typically our team can make a decision fairly quickly after that.
Trusted Insight: What are the advantages to being able to specialize more within a certain asset class, as opposed to being a generalist?
Caixia Ziegler: There are pluses and minuses for both models. The advantages of having a specialist are that hopefully you can develop a deeper understanding of the investments. You know the history, and you are in the flow of information.
Trusted Insight: What advice would you give to someone looking to enter institutional investing and specialize in real estate?
Caixia Ziegler: Meet as many investment managers as possible. You can learn a lot from meeting with managers, even the ones you don't end up investing with. The more you meet, the more you know.
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