ING Real Estate Development has quadrupled its capital commitment to the U.S. market in two years, from $15 million to more than $60 million. The $725 New York Times headquarters building in New York City, launched in partnership with Forest City Ratner, is its biggest project to date. ING, a subsidiary of the Netherlands-based ING Group, a global provider of banking, insurance and asset management services, also announced an $83 million joint venture to convert a candy factory into high-end condos in Cambridge, Mass., and a $55.5 million mixed-use residential project in Annapolis, Md. Martin Standiford, director of development, recently spoke with NREI about ING's long-term investment strategy.
NREI: Why ramp up investment now, when the economy has been so weak?
Standiford: Institutional buyers, retreating from the stock market, are putting money into real estate. With few exceptions, the volume of investment sales deals in the New York office market increased every year from $673 million in 1999 to $6.8 billion through 2002. Also, the price per square foot has increased every year. If we can lease the project, we can find a buyer. We mitigate the soft office or retail market by pre-leasing. Our target is 40% pre-leased.
NREI: What are your criteria for choosing a market?
Standiford: The first question we ask ourselves is: What is our exit strategy? Who will we sell it to when we're done? Our top criteria, then, are lots of well-heeled institutional investors. The average holding period for our properties is four years. We diversify the projects under development, though typically there will be one property type emphasized over another based upon market conditions. For example, our current projects are weighted toward for-sale residential (five residential, one retail and one office project) based upon our assessment that residential will outperform in most markets right now.
NREI: So, how do you differentiate your firm?
Standiford: We take more risks and seek higher returns. Our goal is a 20% return. We look for projects with barriers to entry from competition, focusing on urban or close-in suburban locations with unique or hard-to-reproduce amenities such as subways or waterfront locations. For instance, we're involved in a condo development along the Potomac River in Georgetown. We also come in 12 to 18 months earlier than institutional investors, before a project has received its entitlements, such as design and site approval.
NREI: What is your long-term development strategy?
Standiford: We expect to do four to six new projects a year in the $20 million to $80 million range, with the number of deals increasing over time. Our target markets are New York, Boston, Los Angeles and D.C. We are considering Chicago, Atlanta and Seattle but are very selective in these markets, as current conditions there are not as compelling. Currently, we work exclusively with local development partners as capital providers. Within five years, we want to do about one-third of our projects with our own development team. Eventually, we'd like half of our projects to be in-house.