News analysis: LaSalle’s waiting game

The Asia Pacific operation of LaSalle Investment Management has sat on the investment market sidelines for nearly two years. But regional CEO Jack Chandler tells PERE that he believes this patience will be well rewarded from the investment performance of the new acquisitions the firm has made.

LaSalle Investment Management’s purchases last month of an outlet mall in Greater Tokyo and an office building in Sydney brought the firm’s spending in the region in 2010 to more than $750 million across its funds programme.

You could say the firm’s ‘acquisitions machine’ is fully operational at present with opportunities in Japan, Australia and Singapore high on its radar.

Delve a little deeper and you’ll learn that this year’s activity of the Asian platform follows a hiatus from the market stretching nearly two years.

Indeed it was not long after LaSalle corralled $3 billion in equity commitments for its LaSalle Asian Opportunity Fund III – the vehicle responsible for the outlays in Japan and Australia – that the shutters came down.

The platform was built over the best part of a decade by regional chief executive officer Jack Chandler.

We still looked at a lot of deals. We priced them. It’s just that at first, people weren’t prepared to sell at the prices we were prepared to buy at

Jack Chandler

In a telephone interview with PERE about the firms recent return to investment activity, Chandler recalls: “We still looked at a lot of deals. We priced them. It’s just that at first, people weren’t prepared to sell at the prices we were prepared to buy at.”

The economic downturn, precipitated by the fall of Wall Street bank Lehman Brothers, took its time to infiltrate certain Asia markets but when it did, the bid-ask spread took some time to correct, forcing players like LaSalle to hold on to their capital.

While unable to discuss fund specifics, Chandler would be the first to tell you it isn’t ideal to raise $3 billion in equity only to not invest for such a period of time. After all, a fund’s internal rate of return (IRR) is adversely affected through inactivity as fund and staff costs roll on regardless. But compared to making ill-timed investments in assets which will only see falling values afterwards, he insists there is only one option a responsible investor can take. That option is to wait it out.

“The worse thing a fund manager can do is rush. Yes, going slower can be a drag on performance but our partners have been very appreciative that we waited to restart making acquisitions until we felt the risk/return proposition made sense.”

LaSalle’s fund investment periods are typically between three and four years, meaning its third Asia fund is now half-way through the agreed time it can invest capital committed by its investors.

Chandler suggests the difference between getting a fund’s equity invested in the first 18 months to the second 18 months could be approximately 200 basis points in performance assuming the underlying asset level performance is the same. This is certainly a much better outcome that investing in a period where asset values continue to decline, Chandler argues.

The worse thing a fund manager can do is rush.

Jack Chandler

Everything else being equal, 200 basis points shaved from target 20 percent IRRs is still generally accepted as a nice bit of business, particularly by today’s limited partners who have been inflicted with far worse elsewhere.

For LaSalle’s latest opportunity fund in Asia the investment period still has some way to run – time enough to ensure its inactivity was indeed better for the bottom line.