JLL Income Property Trust CEO Allan Swaringen on the Role of Non-Traded REITs


Most investors think of real estate investment trusts (REITs) as vehicles that combine real estate ownership with the liquidity of corporate stocks, but JLL Income Property Trust takes a different approach. When it was inaugurated nearly six years ago, the REIT, managed by JLL’s LaSalle Investment Management division, was a path-breaker in the non-traded REIT sector. The fund’s assets are marked to market daily, but investors must adhere to a minimum one-year hold. For those who can afford the $10,000 minimum, it’s an approach that offers a better-defined path towards medium-term returns, according to Allan Swaringen, the REIT’s CEO and president. Last week, Commercial Observer got a hold of Swaringen, who works in Chicago, by phone to chat about who his investors are, how he measures success, and why the REIT bought a retail property in Las Vegas last year.

Commercial Observer: You’ve been with the REIT since JLL and LaSalle created it in 2004. What was the goal back then?
Allan Swaringen: The initiative in 2004 really was about broadening our base of clients, and expanding beyond our institutional clients into individual investors. Some people like to think of them as “retail investors,” but I don’t think their investment advisers would [use that term]. If you divide the world up into big pension funds and institutions versus everyone else, the initiative in 2004 was about growing and diversifying LaSalle’s client base, and bringing a solution to the high-net-worth private client space.

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How would you rate its track record?
If you fast forward six years later, it’s gone very, very well. There are a few ways to measure that success. First, the Income Property Trust has achieved really broad diversification and scale. Today we have 69 properties across the four major property types. It’s $2.6 billion of real estate. And we have some 17,000 stockholders, and 3,000 financial advisers who have allocated to us. It’s become quite a substantial business within LaSalle.

The second measure for us is [whether we have] delivered good investment performance for clients. Our strategy is core. The rubber really meets the road [when we ask], have we delivered those target returns? I’d say we have. We told investors we would try to shoot for target returns in the 6 to 8 percent range, with a good portion of that coming from income and regular dividends. Since the beginning, we’ve delivered a little over a 7 percent total returns, and we’ve paid dividends now for almost six straight years, since the global financial crisis. We’ve grown that dividend 5.4 percent annually.

Your outfit was a pathbreaker in the nontraded REIT area. Was it a tough sell?
Ten years ago, we were very early to the market with a new nontraded REIT: kind of the 2.0 version. [It’s] a solution that gives high-net-worth private clients access to a manager like us, and access to high-quality real estate, but with lower fees, greater transparency and a diversified pool. We’ve not only accomplished all that, but being first to market allowed us to get ahead of a lot of folks. Many folks have now replicated our strategy, including other big names like Blackstone and Starwood and Nuveen. That’s actually a good thing, because as the first and only solution, it can be hard to convince people to use you.

You have a minimum investment of $10,000, with a recommended horizon of five to seven years. Who are your typical investors?
It’s definitely focused more on the high-net-worth private client. Though our minimum investment is $10,000, our average investor has actually invested about $100,000 with us, but we have many investors that have put $10 million, and our largest investor has put $90 million with us. It really runs the range. While we’re not exclusively sold to accredited investors, that’s the largest pool of our investors, because we do tell people to get the benefits of core real estate, you need to invest in it for the long term. We’re probably not a good investment if they want to hold us for one or two years. If you want to do trading, you should probably be in the listed REIT market.

What’s your pitch to investors who might be used to thinking of REITs as highly liquid?
We strike a daily valuation, but it’s an appraisal based on the underlying real estate. You talk all the time about traded REITs trading above or below NAV. We’re a net-asset-value REIT, where investors have the opportunity to buy an investment at its NAV—at its fair value. But to get the benefits, investors need to hold us for the long term.

Is debt investing the closest substitute on the risk-return curve for what you offer, or is it more comparable to corporate equities?
When you look at the performance of core real estate—not doing developments, not doing refurbishment—it’s actually outperformed bonds and it’s underperformed equities. And that’s over a 40-year time period. I think that’s what investors are looking for today. As the baby-boomer generation moves out of their accumulation phase and into their decumulation phase, they’re looking to hold assets that are not correlated with the stock and bond markets, and investments that can provide income. And bonds do that, but bonds also, in a rising interest rate environment, lose value. That’s where we’re getting more than our fair share of the pie today.

Many investors believe REITs underperform when interest rates rise, too. But that wouldn’t apply to you because you trade at NAV, right?
I think that’s part of it. Another part of the reason listed REITs [underperform when rates rise] is that they do more floating-rate borrowing, so they’re more exposed to rising interest rates. Eighty-seven percent of our borrowing is long-term fixed rate, mainly because we plan to hold our assets long term. Most listed REITs are in the business of trying to get some income growth and then selling those assets, so they get more churn. We still have very low leverage: our leverage today is about 38 percent, so we’re a very conservative strategy, and lower-leverage than a lot of the REITs that may operate at 40 or 50 percent leverage. We generally borrow from life insurance companies at rates we lock in for 10 years.

I was surprised to see that your only acquisition last year was a mall in Las Vegas.
Actually, it’s a grocery-anchored shopping center. We really very much like [that] market: that’s the only thing we own in our retail portfolio. No malls, no department stores, no lifestyle centers, no outlet centers. The reason why Amazon paid [$14 billion] for Whole Foods was really an acknowledgement that they needed to have a brick and mortar presence to get into the grocery business. We think there’s great resilience in that format.