Swift has already made a name for itself in Bay Area real estate.
THIS ARTICLE WAS PUBLISHED IN THE ‘Q’ – THE REGISTRY’S PRINT PUBLICATION – IN JANUARY 2014[dropcap]C[/dropcap]hristopher Peatross founded Swift Real Estate Partners in 2010. It was an ideal time to take advantage of a real estate market hit by the recession, and Swift started buying almost right away. One of those early properties was the 360,000-square-foot One Concord Center, next to the Concord BART station. It was a time when the market in the East Bay was still not in recovery mode. But Swift also knew how to fill property as well as buy it. Within six months Swift had boosted the occupancy at One Concord Center from 40 percent to 80 percent. [contextly_sidebar id=”8cef832dc4818b9535891369a013ab14″]Prior to forming Swift, Peatross served as president and CEO of Carr, Trizec & Equity Office Properties, managing all aspects of Blackstone Group’s 55 million-square-foot office real estate portfolio. He guided the strategic investments and had operational participation in the public-to-private transactions of CarrAmerica, Trizec, and Equity Office Properties. Before joining Equity Office, Peatross served as the Northern California Market Managing Director at CarrAmerica Realty Corp. for over six years.
Q: On your site, you have a quote from Warren Buffet that says, “The investor of today does not profit from yesterday’s growth.” But your investors do profit from your achievements in the past. What makes Swift different today from all the other things you’ve accomplished in the past?
CP: Success in past cycles does not guarantee similar results. Our markets are always changing and we must adapt to them. Two cornerstones of our real estate investments are:
1. Buying right, and
2. Operating efficiently
Buying right inevitably means finding value in distressed assets and/or transactions that offer the best opportunity for creating value. In addition to distress, we also seek investments that are off-market or under marketed or that have very tight timeframes coupled with complex issues. Lastly, we are very conscious of replacement costs and their relationship to rents and sales prices.
Operating efficiently means not only operating an asset in the highest standard but also efficiently executing a business plan, no matter how complex. Swift is vertically integrated by design: We like to be as close to the real estate as possible, have control and find creative solutions.
Lastly, I’ve been a part of some exceptional organizations and some larger organizations. Swift may grow, but everyone is expected to stay close to the real estate. By definition that means we will not be as big as others.
Q: You have been on a very active fund-raising exercise over the last few months. How has that experience been for Swift? Was it a success?
CP: It hasn’t been easy. We’ve put a lot of effort into it and have been fortunate to get to where we are: To date, we have raised most of the fund, and the goal is to have a final close at the end of Q1 [of 2014]. We’re certainly excited by the partners who have decided to join us—and in that light, I do think it’s been a success.
Q: What were some things that surprised you in that process?
CP: I may not have appreciated how tough it would be. For example, we had potential investors that identified us as a strong operator in 2010, but despite our success over the last three years, they still didn’t invest in our fund.
Q: What is the sense you got from investors about the viability of our market? Yields continue to go down, prices continue to increase; do people still like to invest in our market?
CP: That last question is easy. Yes! If people didn’t still like to invest in our market then yields wouldn’t continue to go down and prices wouldn’t increase. The market is becoming more competitive, yet we believe there are still good deals in the market.
Q: Silicon Valley has a long history of booms and busts. Right now we have a boom that is the envy of the rest of the nation. Are we close to the peak of the boom or do you feel like we still have a little bit of room for property value growth?
CP: The market doesn’t have a strong supply pipeline, and values in many markets are not near replacement cost. If you look at the past three years of net absorption, and we continue to grow at that rate, we will have a very strong owner’s market.
I think a vibrant IPO market will push things further and we will have that in 2014. I also think that the traditional office tenants—the FIRE industries (finance, insurance and real estate)—are slowly but steadily improving. On the flip side, we may have to deal with the Fed tapering and continued budget uncertainty in Washington.
Q: We have heard that employment increases have been mainly supported by the technology industry around the country. Tech cluster cites certainly seem to be doing better. As the rest of the nation continues to await a recovery, is it possible that we experience another recession before we ever come out this one?
CP: Not only does the IPO pipeline remain strong, but the technology sector is diversified and integrating itself further within “old line” companies like Walmart, Macy’s, Bechtel and Chase, who are focusing on expanding e-commerce and back-office technology. The energy sector is doing well and residential real estate continues to improve. Typically, euphoria in the markets with regards to valuations in real estate and IPOs occurs before a crash. However, we have not seen anything close to that environment yet.
Q: You have made some big bets in the East Bay, and the conditions are perhaps ripest for that market to take off. Do you agree, and do you feel optimistic about what it has to offer compared to other submarkets in the Bay Area?
CP: The East Bay is interesting because entry level and occupancy costs are materially lower than those in San Francisco. Consequently, rents are lower. The influx of information technology professionals has driven up residential rents and discouraged East Bay commuters from living in San Francisco. We believe there to be tremendous opportunity for redevelopment and investment within these submarkets and are seeing San Francisco based firms actively looking in the East Bay.
Q: Was your fund raising focused on acquiring properties in the Bay Area only, or is Swift ready to expand outside of our region?
CP: Our team has a lot of history throughout the West Coast, and we are looking in Southern California and the Pacific Northwest. That being said, we made a conscious decision to base our firm in the Bay Area and this market will always be a focus for us.
Q: Is there a fear of inflation? We have heard continuously for over two years now that it’s coming fast and furious, yet it seems nowhere in sight. What are you seeing?
CP: Inflation and interest rates are big topics among real estate investment committees, including ours. Real estate has always been something of a hedge for inflation, but rising interest rates can have a negative effect on the capital markets—notably through cap rates. Swift tailors hedging strategies on our debt to each asset and business plan, and we are constantly re-assessing. Although short-term interest rates have risen year to date, the Federal Reserve has acknowledged that they will maintain a consistent, long term bond buying program that will temper any fluctuation within the credit markets.
Photography by Laura Kudritzki