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2000+ What's ahead for real estate

People constantly ask Charlie Lowrey what has kept him at J.P. Morgan for 11 years. Sure, J.P. Morgan is a great company, one of the most well-respected in the world, but 11 years is a lifetime, maybe a few lifetimes, on Wall Street. And looking at Lowrey's background, there is no doubt others have tried to lure away Lowrey, J.P. Morgan's managing director and head of the company's Real Estate Investment Banking group for the Americas.

Still, Lowrey quickly points out three factors that brought him to Morgan and the reasons he stays: the company's culture, its people and the company's approach toward clients. "The way we do business - that is to be considered as the trusted adviser to a client and the fact that Morgan gives one the latitude to give the right advice despite the fact that it might mean turning down a transaction - is one of the major reasons why I, and I think all of my colleagues, remain at this firm," he says.

Here, NREI sits down with Lowrey to talk about J.P. Morgan and the company's global outlook.

Lowrey: We have two fundamental theses. One is that real estate will become increasingly securitized over time, and two, it will become increasingly global. As a result, we want to position ourselves to serve our clients on a global basis, so we have a strong group in London focusing on Europe. We have a strong presence in Latin America, and we have a presence in Asia, both in Hong Kong and Tokyo.

Our goal is to be able to serve our clients wherever they may be. Every client isn't going to be global, nor should every client be global. But it is to say that we have the capability to help people both on a regional basis - speaking from a parochial view in the United States - but also some of those clients want to go to Mexico, South America, Europe, etc., and create joint ventures and make acquisitions. We are in a good position to help them do that.

NREI: How does your staffing structure fit in with globalization?

Lowrey: We're staffed globally. Not all firms are staffed globally, and not all firms have the strategy of being a global investment bank, especially in the real estate business. But we absolutely do have that strategy, so we are staffed with significant numbers of people to create a critical mass in locations outside the United States.

Secondly, we don't try to be all things to all people. We try to be all things to a limited number of clients. We choose clients that want to do business with us and that we want to do business with. There isn't always a fit with every company, but we carefully choose our clients and try to cover them extraordinarily well. And that's really the core of our strategy, to be the trusted advisor to our clients and have them call us when they have an issue and work with us when they have those problems.

NREI: How do you approach mature markets such as Western Europe, and how do you approach more emergent markets such as Latin America?

Lowrey: We've had relationships in London, for instance, with many of the established real estate companies there for a long time. Having said that, we are firm believers in understanding local economies and the ways in which a country or region does business. So in London we hired people from various countries to be able to specifically cover those countries - because how you transact business in France is very different than how you might transact business in Spain, Germany, The Netherlands or England. We have put together what I'll call a pan-European team of people that have the expertise in the different regions. As you start to think about what Europe will be doing in creating what will eventually be pan-European companies, which heretofore really haven't existed in the real estate sector, we think that having a team with expertise in each different region is going to be critical.

Similarly, if you talk about emerging markets in Latin America, we have a team of people dedicated to Latin America, and we are firm believers that if you are going to transact business there, you need to know what you're doing, you need to know the right people and companies, and you need to know how business is transacted. As a result, you need people with specific expertise who can help you do that.

NREI: Jon Zehner, managing director of J.P. Morgan's real estate sector, moved to London last year to work with your European operations. How are things going across the pond?

Lowrey: It's been very successful. Europe is obviously behind the United States in terms of thinking through the public securitization of real estate, but it (securitization) is coming to the forefront of everyone's minds. So we are there assisting lots of clients with thinking through this issue, with beginning to form strategies for securitization. Now, what I'll call capital markets expertise has been exported over to European real estate companies and will transform the European real estate market.

NREI: Sounds like you have some outstanding opportunities.

Lowrey: It's extraordinarily exciting, and to be there at the beginning is what we wanted. To be at the forefront of leading people into thinking about how to approach a different model for operating real estate in Europe is extremely exciting.

NREI: What are some other global opportunities?

Lowrey: There are going to be major opportunities for real estate companies in each region of the world. In South America, Asia and Europe, there is a tremendous amount of opportunity for companies that are in their nascent stage at this point in their life cycle to grow and expand and look for opportunities either, again, on a regional basis or on a global basis.

Lowrey: Recovery is in its very early stages in Asia. The pain that was felt in many countries has dissipated to a certain extent and may have dissipated too soon for many of the reforms that needed to take place. As a result, we may just be postponing a restructuring that may have to happen before a significant change can really occur in real estate markets. I don't think this is a hockey stick at all, that we've been in the doldrums and - boom - it's going to recover. It will actually stay flat or go down before a full recovery.

NREI: What are some of the factors behind securitization's expanding role in real estate finance?

Lowrey: I think the fundamental factor is consolidation of financial institutions. If you look at what has happened to the major real estate lenders, there's been a tremendous amount of consolidation. I would argue that one-plus-one does not equal two in terms of exposure, so there may be a reduction in the amount of capital available to be lent to the real estate industry on a non-recourse basis. It is that role specifically that the CMBS market can efficiently fill. In addition to that, the CMBS market, as it matures, is becoming in some ways more standardized, which makes it more user friendly.

NREI: You and others at J.P. Morgan say the company is less interested in league tables than in smart growth. How do you intend to 'grow smart' over the next few years?

Lowrey: We look for business which makes sense for the client and makes sense for us. When I or a colleague said we're not interested in league tables so much as smart growth, I think we meant that we are interested in meeting our clients' needs, and if that puts us at the top of the league tables, great. And if it doesn't, that's okay, too.

The fact is, we're at the top of the league tables in a number of different charts, or near the top in terms of unsecured bond issuance and in terms of helping clients hedge some of their exposures and in terms of M&A. The issue, though, is that constantly looking over our shoulders to see if we are at the top of league tables isn't what drives our business. What drives our business is covering our clients well, becoming one of if not their most trusted advisor. If we do that, and if we do our job well, the business will come.

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