AMERICAS NEWS: Finding the alpha in beta

James Corl

You don’t often find fund managers saying they want to find the beta in real estate.

However, if the past 18 months have taught the private equity real estate industry anything, it’s that markets can turn ferocious if you fail to read the macro story properly. After all, getting the beta right in today’s environment could mean the difference between making returns for your investors or losing their principal. Once you have the beta, you can then go searching for the alpha.

It’s a principle James Corl, former Cohen & Steers’ chief investment officer and now managing director of real estate investments at Siguler Guff, is holding dear in his new role at the New York-based private equity firm.“Alpha is great, but if you have the big picture wrong then it will kill your returns,” he said, talking to PERE at the end of June.

But for Corl, finding beta isn’t about focusing on a specific real estate sector, but on actually looking at all the different formats of real estate investments more “holistically”. The traditional funds of funds strategy of investing almost exclusively in direct property investment funds is unnecessarily limiting, he said. Rather, accessing a more expanded “menu of options”, including public, private, domestic and international real estate and debt as well as equity, gives you more opportunity to “unearth value”.

The different formats of real estate investment should be considered “substitutes to each other, not compliments to one another.

You don't want to be investing with people who had poor investment senses and drove the bus off the cliff.

 James Corl

Real estate is one asset  class, but many markets,” he added. As such Corl argues investments should be made where the opportunity arises, whether its in REITs one moment, opportunistic private equity real estate funds another moment or debt the next moment. “You want to find the silo that has the most beta and then find the fund manager who can create the most alpha,” Corl explained. “If you are going to be opportunistic you should be finding where the best returns are and going there, irrespective of whether it’s public or private or anything else. One’s investment process should not be constrained by the underlying manager’s compensation structure.”

Since his appointment at Siguler Guff in March, Corl has developed the firm’s real estate platform recently hiring Anthony Corriggio, former executive at hedge fund Coeus Capital Management and ex-chief financial officer of residential and commercial land developer The St. Joe Company, to the team.

Corl was previously CIO at Cohen & Steers, but left the firm in February 2008. “I was waiting for the world to do a faceplant. Once it did it didn’t disappoint.” Corl adds that Siguler Guff’s specialty in distressed investing “accommodated my view that a more expansive menu of options was the right approach. It was the right platform to address the changed world.”

Resurfacing at Siguler Guff, Corl intends to help the firm take advantage of the current cycle of real estate distress. He said it could take between four and six years before real estate is no longer distressed, warning that the scale of the recession was more “pervasive” than during the US savings and loan crisis. “During the height of the market you could rationalize away negative leverage because of your growth assumptions. That’s why this will be worse. It’s global and the math was more extreme.”

However, as a fund of funds investor today Corl offers some advice: know your GPs well. “You don’t want to be investing with people who had poor investment senses and drove the bus off the cliff.”