Shopping Center Business

MAY 2015

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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182 • SHOPPING CENTER BUSINESS • MAY 2015 development thinking. We get ahold of projects, we work them, we chew on them and we take our time doing them. Our DNA, like so many in the industry, goes back to The Rouse Company, I would say. John Borne attracted many people to Madison Marquette who had a history with The Rouse Company. That brought a lot of thoughtful decision-making, mer- chandising and placemaking strategies to our company. Jim Rouse, in particular, championed that. I never worked for The Rouse Company. I started at JMB/Feder- ated, which was the pre-cursor to Madi- son Marquette in many ways. We were surrounded by Rouse people, so I was infected with a lot of their philosophies. SCB: Today, Madison Marquette techni- cally has two sides to its business. Tell us about those. Hohmann: We have the investment side, and the real estate services side. The real estate services side is our operating platform. SCB: What trends are you seeing on the investment side of the business? Hohmann: On the investment side, we are seeing one major trend. Coming out of the recession, there is a strong interest from capital — particularly in- ternational capital — to directly invest in real estate. These capital sources want to have greater control over their operating partner, and the outcomes of the invest- ment. Why? Because in the recession they were burned through some indirect investments with bad partners. Some in- vestors are building their own platforms so they have even greater control of the execution of the assets. Chiefly, they are tired of giving capital to an allocator, who then ventures with an operator; both those partners have promotes and fee layers. It is more efficient for the investor to go direct to the companies who are execut- ing. We have been approached, more and more, by investors directly. Offshore in- vestors like our platform because we have offices up and down both coasts. We are in a lot of markets, we are sourcing deals on our own. We also have a proprietary pipeline of new deals. Investors for spe- cific strategies like having access to our pipeline. SCB: Explain how you work with investors? Hohmann: We put together investment vehicles around a specific strategy. We have investors already arranged and pre- negotiated so that when we find properties that fit, we can acquire them without seek- ing investors. Our platform is appealing to those investors because the real estate industry is deal constrained. There aren't a lot of good opportunities. Our inves- tors can get first crack at a deal that fits a strategy by having a pre-negotiated ar- rangement with us. SCB: What are foreign investors seeking when they invest in U.S. real estate? Hohmann: The United States' econo- my is perceived as one of the best. We have growth and we have returns. There is perceived safety, in terms of economic soundness and the stability of the dollar. We do suffer from taxation. Our FIRP- TA (Foreign Investment In Real Property Tax Act) laws make it difficult oftentimes for offshore investors. We have been de- veloping expertise about tax efficiency for our offshore investors. We have created deal structures and partnership arrange- ments that minimize the tax bite that an offshore investor might have, as well as the severe withholding requirements that the federal government requires if they want to repatriate capital. SCB: What types of projects are you in- vesting in today? Hohmann: Our investors are interested in gateway cities, especially urban, infill markets in those cities. That's where they want us to deploy capital. In those markets, the ground up development opportunities are in the mixed-use sec- tor. We have a project underway now in Washington, D.C., along the Potomac River called The Wharf. We commenced construction in April 2014. It will be a multi-year, multi-phase project with a re- tail base. There will be subterranean park- ing. Above and around the retail will be apartments, condominiums, office space, entertainment, dining, a marina and three Madison Marquette acquired Pacific Place in Seattle and has plans to modify the center in the near future.

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