Managing Risk in Real Estate Through Diversification

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Photo courtesy of Jackrabbit Design

Paul J. Nasser
President, Intercontinental Real Estate Corporation
Age:
63
Industry experience: 41 years

Boston-based Intercontinental Real Estate is preparing to launch its latest private equity fund and acquire $1 billion in commercial real estate, adding to its portfolio which currently includes 154 properties totaling 36.2 million square feet across the U.S. Following a career in banking, Paul Nasser has spent the second half of his career at Intercontinental, including the last two years as president. On Oct. 17, the Real Estate Finance Association will present Nasser with the Robert S. Swain Jr. Distinguished Service award to recognize his extensive civic and charitable activities.

Q: Given Intercontinental’s broad national footprint, what do see as Greater Boston commercial real estate strengths and weaknesses in 2024?
A:
Boston is not different than any of the other major cities. Office is clearly challenged at the moment, but we have some distinct advantages over other cities that will make the downward trend be shorter: great colleges and universities which generate excellent students who come out and want to live here. These colleges have entrepreneur programs that generate startups. We have some of the best hospitals in the country and some would argue in the world. We have a strong health care network, despite what’s in the news today with Steward.

Q: Which asset types are you expecting to bounce back first in new development?
A:
I think it’s going to be multifamily still. Inside Route 128, it’s going to be multifamily if you can find the property to do it with. After that, it probably is going to be industrial, because I think Greater Boston has always been underbuilt when it comes to industrial. If you can find the land at a reasonable cost, industrial is going to do extremely well.

Q: When do you expect new construction financing for hotels will return in Boston?
A:
We just need to have a few more years of steady occupancy increases. After the pandemic, our hospitality property [the Hampton Inn and Homewood Suites by Hilton at 670 Summer St. in Boston] has done extremely well. In fact, it sold out for most of the summer. There’s probably capacity for additional hospitality projects. Our property has benefited from a couple of drivers: the convention center and business travel, and there is a very popular cruise component. People want to come see Boston for its history, and they may go on a cruise but they are going to add a couple of days at the beginning or end.

Intercontinental Real Estate’s Hampton Inn and Homewood Suites by Hilton property in Boston’s Seaport District has been “sold out for most of the summer,” Nasser said, reflecting the region’s strong lodging market. Photo by Steve Adams | Banker & Tradesman staff

Q: What is Intercontinental Real Estate’s investment strategy and business plan?
A:
We have established a series of private equity funds, and each has its own specific strategy with different scale of risks and targeting different locations. Our flagship product, which is the U.S. Real Estate Investment Fund, is a national fund that is diversified by property type on purpose. We want to mitigate risk by not putting all of our eggs in one basket. We do some office, retail, multifamily, industrial and we even do a little bit of hospitality, medical office and assisted living. That particular fund is a core strategic fund. We think of it as something that’s relatively safe investing with lower returns, less risk, lower leverage and gives investors a nice quarterly dividend and hopefully appreciation. It’s an open-ended fund, so that means it’s in a perpetual [fund] raise.

Q: Will there be opportunities for Intercontinental to invest in distressed office properties?
A:
I definitely think so. Unfortunately, there will be some deals that don’t make it whether it’s because it was overlevered or leasing prospects just dropped out. In past cycles, we’ve always been well-positioned to take advantage of that.

Q: What is your next investment fund?
A:
We are preparing to begin raising a new value-focused closed-end fund targeting $500 million which would be 50 percent leveraged, giving us up to $1 billion in buying power.

Q: Was commercial real estate a natural career progression for you coming from commercial lending?
A:
I don’t know if it was natural. I came out of college with an undergraduate degree in urban planning, not thinking that I was going to be a banker. In 1983, the economy wasn’t so great. Someone in my family was in CRE banking and said, “You ought to consider that.” I said, “Do you think they would take somebody without a business degree?’”

Q: What’s changed in land-use circles since your academic days?
A:
The biggest difference is scale. When I got out of college, projects were looked at as kind of a one-off and didn’t really factor into the larger-scale effects on the surrounding community. Today, there’s a huge difference. The properties are bigger and they are phased in over a longer period of time. There’s much more emphasis on figuring out the impacts on the greater community, and better planning comes out of that.

Nasser’s Five Favorite Movies:

  1. “Gladiator”
  2. “The Godfather” I and II
  3. “The Fifth Element”
  4. “The Shawshank Redemption”
  5. The “Star Wars” franchise