Cole Quoted in the Business Journal

Portland Business Journal by Suzanne Stevens February 4, 2016

Portland’s commercial and residential real estate markets are on fire. Home prices and apartment and office rents are soaring, and even with a full pipeline of new multifamily and commercial office buildings coming online in 2016, the consensus is that demand will not be sated.

Other U.S. cities are experiencing similar demand.

The environment has made real estate a prime target for investors.

Ralph Cole is executive vice president of research for Ferguson Wellman Capital Management. The Portland-based firm, with $4 billion worth of assets under management, manages a portfolio heavy on stocks and bonds, but it has been finding success in real estate as well.

The environment has made real estate a prime target for investors.

Ralph Cole is executive vice president of research for Ferguson Wellman Capital Management. The Portland-based firm, with $4 billion worth of assets under management, manages a portfolio heavy on stocks and bonds, but it has been finding success in real estate as well.

We talked to Cole about the current landscape for real estate investing and his outlook for 2016.

How has the booming real estate market influenced your investment mix? The main driver for us on real estate over the last five or six years has been the quest for yield. As people buy asset classes, they want dividends and real estate provides a nice steady cash flow. In capital markets people have been willing to pay up for Real Estate Investment Trusts. They’ve become very expensive. The question is, is real estate really expensive when related to other fixed income alternatives? If you can get 2 percent from a bank and you can get 5 percent from a real estate investment, you’re more willing to pay up for that yield if interest rates are going to stay low.

Looking ahead, are there deals to be had? There are very few bargains in the world eight years into an expansion and you have to start looking at things on a relevant basis. It might not be cheap but it’s cheap relative to other options. Does real estate end like it did last time? We don’t know. These cycles do end and hopefully you manage the risk associated with it. For the next year, though, real estate is in a good place.

When you’re making investment decisions, how do you factor in the fact that this up-cycle has been underway for years and that it will eventually? The main thing we look at in the later end of a cycle is the debt associated with any project. It will be the downfall of any investment. If we buy something in real estate, we’re going to make sure it’s low leverage. We know what we’re going for and it’s 7 percent to 8 percent. We want lower risk. It definitely offers a third leg to the stool, with stock and bonds.

We’re seeing a lot of new development, certainly in Portland, but elsewhere nationwide. What are you thought on investing in new projects? We’re not ever going to invest in development. There’s too much risk in it. It works until it doesn’t. (But overall), as we look at real estate, the fundamentals are dynamite. Rents are going up, jobs are plentiful. It seems if you find in-place real estate with a decent yield, that’s where we want to be.

Disclosures