Press Release

Why JLL Income Property Trust Sees Multifamily as a Key Growth Driver

March 30, 2018 — Chicago

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Interview by John Egan | Mar 30, 2018 | National Real Estate Investor

Chicago-based JLL Income Property Trust Inc., whose parent is commercial real estate giant JLL, firmly believes in the multifamily sector.

The daily NAV REIT—advised by LaSalle Investment Management Inc., a member of the JLL group—splits its holdings among four property types: multifamily, industrial, retail and office. These days, it’s intensifying its focus on multifamily.

At the end of 2017, JLL Income Property Trust owned and managed $2.6 billion in assets—67 properties in its four core sectors, along with two parking garages.

“We have long-term aspirations of being a $5 billion to $10 billion program,” says Allan Swaringen, president and CEO of JLL Income Property Trust.

As it stands now, multifamily represents 26 percent of the non-traded REIT’s portfolio, with retail at 30 percent, industrial at 23 percent, office at 19 percent and parking at 2 percent. That mix is poised to shift, though, as retail, industrial and office take a back seat to multifamily.

In its pursuit of multifamily assets, JLL Income Property Trust searches for existing, stabilized properties with high occupancy rates. Swaringen says the REIT wants to rely on strong management and “light” upgrades of those properties to assure they’re solid long-term holds.

He notes the REIT has recently purchased a couple of newly built multifamily projects and assumed some of the lease-up risk, but it has no appetite for ground-up construction.

“We don’t do development, we don’t take entitlement risk and we don’t buy land,” Swaringen says.

In an interview with NREI, Swaringen laid out JLL Income Property Trust’s approach to diversification, explained why the REIT is dialing back its interest in industrial, revealed the company’s favorite category in retail real estate, divulged why the company is skittish about the office sector and discussed the REIT’s affinity for multifamily properties.

The Q&A has been edited for length, style and clarity.

NREI: What’s the strategy behind your REIT’s diversification?

Allan Swaringen: Our program is very focused on delivering durable, cash-flow-consistent, growing-over-time quarterly dividends to our stockholders. As such, there are certain property types that LaSalle has been tracking for 20-plus years—and certain geographic markets, too—that we find have exhibited a consistency of occupancy and a consistency of rent growth and an ability to generate cash flow. With that as a priority for us, that’s put us in an overweight position in industrial, an overweight position in grocery-anchored retail, a neutral weight, but growing allocation in apartments, and actually a significant underweight position in office properties because office buildings generate the least amount of free cash flow.

NREI: If you’re currently overweight in two sectors and either neutral or underweight in two sectors, what is your strategy going forward?

Allan Swaringen: We would like to add more industrial to the portfolio, but we’re going to be very selective because there’s so much capital chasing high-quality industrial warehouse markets around the country. We’re just going to probably be less active in that sector than maybe we were over the last two or three years.

We’re not buying every kind of retail. We’re not buying malls. We’re not buying power centers. We’re not buying lifestyle centers. We have avoided all kinds of retail, except for the neighborhood and community grocery-anchored shopping centers. We believe that sector has great resiliency. Outside of our grocery anchors, 90 percent of the retail tenancy is providing some sort of goods or services that cannot be bought online. So, whether it’s getting a Starbucks cup of coffee or a Jimmy John’s sandwich or getting your teeth whitened or getting your back massaged or getting your nails done or getting your hair cut, those are things that our tenants are providing to customers, and you can’t get those over the internet. 

We’re going to stay underweight in office. That’s principally not so much about our outlook on office markets or even the office sector. That is a property type that takes a lot of capital. It’s a property type that as a landlord, you’re required to make significant reinvestments in the property every time you renew tenants. So, you can get nice returns from office properties, and our outlook for office markets is pretty strong, but you get more returns there on the IRR than you do on the cash flow. And we’re pretty cash-flow-driven in order to pay dividends to our stockholders.

The one thing that we’ve grown more over the last two years and we’re going to continue to focus on in 2018 and 2019 is our portfolio of apartments. The reason we like apartments is that the shorter duration of those leases allows you to grow your rents faster. We think we’re going to be in a period of rising inflation and increasing rent. We’ve got a lot of long duration leases in the portfolio already; we’re looking for some leases at the shorter end of the curve, and apartments are going to be able to do that for us.

NREI: Is there room for everyone to be chasing multifamily investments? Is there a risk of the sector being too crowded?

Allan Swaringen: I think there is a risk. But while the home ownership rate is increasing, it’s going to take many, many years for it to tick back up. The rising interest rates make single-family mortgages harder for “starter” families and millennials and folks coming out of college. So, we think people are going to be renting longer. That’s the macro perspective.

From the micro perspective, apartments continue to typically be the least accepted property type to develop in a community. There’s a NIMBYism that prevents and somewhat impedes development of new apartments. It’s really because apartments, especially larger multifamily communities, often can be drains on governmental services. They inject a lot people into school systems. They inject a lot of new cars and traffic. Most people want to live next to somebody else that’s in a nice home like their nice home; they don’t necessarily want to live next to apartment renters. That doesn’t mean there’s not new apartment development going on; it just takes longer and it’s harder. I think that’s a micro factor that you’re continuing to see, and that’s why we’re optimistic about strong rent growth and strong occupancy across the apartment sector.

NREI: Is everything on your acquisition radar in the class-A category?

Allan Swaringen: We’re principally focused on class-A property types. But that varies a lot across different property types. Most of the stuff we focus on is institutional-quality, so it’s generally been institutionally-owned. Our focus is more on the primary and strong secondary markets, and typically class-A properties. That’s because we’re long-term holders. We’re not really in the business of “Buy it, fix it and sell it.” We’re in the business of “Buy it, manage it very well, hold it for the long term, try to grow the income and get some modest appreciation.”

NREI: From a geographic standpoint, how do you figure out where you want to invest?

Allan Swaringen: Geography is important to us, but it’s second to property type. I’d say our primary objective around our geographic diversification is to be sure that we’re spread out across the country. Because we’re a relatively risk-averse investor, we really want to spread our holdings broadly across a lot of property types, a lot of markets, a lot of different tenants and a lot of different industries. We believe one of the best risk management strategies you can pursue is just to be very, very diversified. We don’t want to have a huge, concentrated position in a single market. Beyond that, we tend to focus on where we’re trying to move our portfolio weightings across the different property sectors.


About JLL Income Property Trust

Jones Lang LaSalle Income Property Trust, Inc. is a daily NAV REIT that owns and manages a diversified portfolio of high quality, income-producing office, retail, industrial and apartment properties located primarily in the United States. JLL Income Property Trust expects to further diversify its real estate portfolio over time, including on a global basis. For more information, visit www.jllipt.com. 

About LaSalle Investment Management

LaSalle Investment Management, Inc., a member of the JLL group and advisor to JLL Income Property Trust, is one of the world’s leading global real estate investment managers with nearly 700 employees in 17 countries worldwide and approximately $60 billion of assets under management of private and public property equity and debt investments. LaSalle’s diverse client base includes public and private pension funds, insurance companies, governments, endowments and private individuals from across the globe. For more information, visit www.lasalle.com. 

Forward Looking Statements

This press release may contain forward-looking statements with respect to JLL Income Property Trust. Forward-looking statements are statements that are not descriptions of historical facts and include statements regarding management’s intentions, beliefs, expectations, plans or predictions of the future. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from those expressed or implied by such forward-looking statements. 

Summary of Risk Factors

You should read the prospectus carefully for a description of the risks associated with an investment in JLL Income Property Trust. Some of these risks include but are not limited to the following:

  • Since there is no public trading market for shares of our common  stock, repurchases of shares by us after a one-year minimum  holding period will likely be the only way to dispose of your  shares. After a required one-year holding period, JLLIPT limits the amount of shares that may be repurchased under our repurchase plan to approximately 5% of our net asset value (NAV) per quarter and 20% of our NAV per annum. Because our assets will consist primarily of properties that generally cannot be readily liquidated, JLLIPT may not have sufficient liquid resources to satisfy repurchase requests. Further, our board of directors may modify or suspend our repurchase plan if it deems such action to be in the best interest of our stockholders. As a result, our shares have limited liquidity and at times may be illiquid.
  • The purchase and redemption price for shares of our common stock will be based on the NAV of each class of common stock and will not be based on any public trading market. Because valuation of properties is inherently subjective, our NAV may not accurately reflect the actual price at which our assets could be liquidated on any given day.
    JLLIPT is dependent on our advisor to conduct our operations. JLLIPT will pay substantial fees to our advisor, which increases your risk of loss. JLLIPT has a history of operating losses and cannot assure you that JLLIPT will achieve profitability. Our advisor will face conflicts of interest as a result of, among other things, time constraints, allocation of investment opportunities, and the fact that the fees it will receive for services rendered to us will be based on our NAV, which it is responsible for   calculating.
  • The amount of distributions JLLIPT makes is uncertain and there is no assurance that future distributions will be made. JLLIPT may pay distributions from sources other than cash f low from operations, including, without limitation, the sale of assets, borrowings, or offering proceeds. Our use of leverage increases the risk of your investment. If JLLIPT fails to maintain our status as a REIT, and no relief provisions apply, JLLIPT would be subject to serious adverse tax consequences that would cause a significant reduction in our cash available for distribution to our stockholders and potentially have a negative impact on our NAV.
  • While JLLIPT’s investment strategy is to invest in stabilized commercial real estate properties diversified by sector with a focus on providing current income to investors, an investment in JLLIPT is not an investment in fixed income. Fixed income has material differences from an investment in a non-traded REIT, including those related to vehicle structure, investment objectives and restrictions, risks, fluctuation of principal, safety, guarantees or insurance, fees and expenses, liquidity and tax treatment.
  • Investing in commercial real estate assets involves certain risks, including but not limited to: tenants’ inability to pay rent; increases in interest rates and lack of availability of financing; tenant turnover and vacancies; and changes in supply of or demand for similar properties in a given market.
  • You should carefully review the “Risk Factors” section of our prospectus for a discussion of the risks and uncertainties that we believe are material to our business, operating results, prospects and financial condition. Except as otherwise required by federal securities laws, we do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
  • This sales material must be read in conjunction with the prospectus in order to fully understand all the implications and risks of the offering of securities to which it relates. This sales material is neither an offer to sell nor a solicitation of an offer to buy securities. An offering is made only by the prospectus.
  • Investors could lose all or a substantial amount of their investment. Alternative investments are suitable only for eligible, long-term investors who are willing to forgo liquidity and put capital at risk for an indefinite period of time.
  • This material is not to be reproduced or distributed to any other persons (other than professional advisors of the investors or prospective investors, as applicable, receiving this material) and is intended solely for the use of the persons to whom it has been delivered. 

Forward-Looking Statement Disclosure

This literature contains forward-looking statements within the meaning of federal securities laws and regulations. These forward-looking statements are identified by their use of terms such as  “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,”  “intend,” “may,” “plan,” “predict,” “project,” “should,” “will,”  and other similar terms, including references to assumptions  and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors that may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks, uncertainties, and contingencies include, but are not limited to, the following: our ability to effectively raise capital in our offering; uncertainties relating to changes in general economic and real estate conditions; uncertainties relating to the implementation of our investment strategy; and other risk factors as outlined in our prospectus and periodic reports filed with the Securities and Exchange Commission. Although JLLIPT believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that the expectations will be attained or that any deviation will not be material. JLLIPT undertakes no obligation to update any forward-looking statement contained herein to conform the statement to actual results or changes in our expectations.