Paul Finkbeiner has experienced some pretty tough business climates during his 30-plus-year career, so the global head of real estate for Great-West Lifeco is unruffled by the current situation facing commercial real estate investors and managers.
Finkbeiner reminisced about the many lessons he’s learned over the years and addressed a wide range of other topics during a recent online interview sponsored by Real Estate Forums, and hosted by First National Financial LP executives and podcasters Aaron Cameron and Adam Powadiuk.
Finkbeiner was president of GWL Realty Advisors from 2001 to 2019 and grew its real estate portfolio from $800 million to $17 billion in Canada and the United States. As global head of real estate, he now oversees $27 billion in assets under management in Canada, the U.S., the United Kingdom and Ireland.
Things weren’t nearly as rosy early in Finkbeiner’s career, however.
He earned masters degrees in engineering and business administration and worked briefly as an engineer and an account manager for a bank before realizing he didn’t like either of those jobs, and wanted to enter the real estate sector.
Finkbeiner’s early real estate career
Finkbeiner’s first job in the field was as an acquisition analyst with Trilea Shopping Centres Ltd. When a recession hit in 1989, things deteriorated to the point where he was happy to still have a job with the company as an assistant property manager.
So, he knows a bit about tough times.
“These are difficult times that will pass,” Finkbeiner said of the current COVID-19 crisis. “However, when it comes to opportunities, take any job you can get in real estate because it’s going to be fun.”
Finkbeiner moved on to Brookfield Property Partners in 1991 and spent two years as corporate operations director.
The company had office buildings in major North American markets and a vacancy rate of about 25 per cent. It was buying properties where the debt was higher than the value of the asset, according to Finkbeiner.
Debt levels of 75 to 85 per cent weren’t uncommon back then, and things got so bad the person who hired Finkbeiner said he should get out of the real estate industry, because it was going nowhere for the next five to 10 years.
A desire for a better job and title prompted Finkbeiner to move his family to Calgary, so he could become senior vice-president of Trizec Properties from 1993 to 1995. That wasn’t a great situation either, as the company had to be purchased out of bankruptcy.
Joining GWL Realty Advisors
Paul Kennedy, Finkbeiner’s former boss at Trizec, moved on to GWL Realty Advisors and soon hired his friend and former colleague to join him. The company was very small at the time but had growth initiatives focused on buying bigger assets, growing third-party accounts and accessing multiple sources of capital.
That was a major difference between Brookfield and Trizec, which Finkbeiner said at the time relied on capital markets as its sole source of capital.
“If you only have one source of capital and they say ‘No,’ then you’re kind of stuck. By having multiple sources of capital, that allowed us to grow,” he explained. “If one group didn’t like it, we took it to another group and we tried to make sure there was no conflict between the various groups. The whole thing worked out very well.”
Asset values went down when the 2008 financial crisis hit, but quickly went back up. Finkbeiner said it didn’t cause any major changes to the business, because he knew the market would rebound.
“We felt we needed to sell assets, but we were going to sell assets in a disciplined way. And if we didn’t get our value that we thought it was worth, we didn’t sell. Some buildings we sold and some buildings we didn’t.”
Location and avoiding excessive debt are key
Location remains the key factor in real estate, according to Finkbeiner. While Alberta isn’t a market where many real estate investors want to be heavily weighted these days, GWL Realty Advisors still has significant holdings and isn’t looking to get out.
The firm believes it will make a comeback and escape its current lengthy down cycle.
“If you invest for the longer term and don’t use a lot of debt, it’s hard to get into trouble,” said Finkbeiner. “Where you get into trouble is when you borrow too much money against your real estate and think that it’s never going to go down.”
Finkbeiner believes there will be a temptation for some companies to lever up because interest rates are so low, but he doesn’t think leverage will be allowed to rise to the high levels of the late 1980s.
“There’s a lot more discipline in lending, as well as in the real estate industry, that you didn’t have before. Most of the real estate is now held by institutional owners or REITs that have a certain discipline, and REITs are limited in how much they can borrow.”
Working with multiple countries
While Finkbeiner now oversees real estate activities in four different countries, he sees both commonalities and differences among them.
“The global view shows you’re not alone,” said Finkbeiner, before adding, “you get a sense for the different cultures. The U.S. is more aggressive and will do more deals. Canadians are more cautious.
“It’s not about buying real estate as much as it is buying companies. You’re buying cultures and you’re buying people, and that’s been a real fun thing to do, to get to know people and bring them into your company and say ‘We’re going to try to grow this thing together’.”
Industrial is the favoured asset class in all four countries where Great-West Lifeco holds real estate assets. It will be emphasized more moving forward because of e-commerce and the growing importance of warehousing.
Finkbeiner also remains a firm believer in the office market.
While the company concentrates on needs-based retail, which is generally still performing well, that can’t be said for many shopping centres and big box stores.
Finkbeiner envisions more department stores being converted to call centres, divided into multiple uses, playing a part in getting goods ordered online to consumers, becoming more entertainment- or experiential-focused, or being redeveloped into multifamily or mixed-use properties.
“You’ve got to get creative when it comes to real estate,” he said.
Great-West Lifeco is still investing despite the uncertainty surrounding COVID-19. It has primarily been looking for deals in the U.S., and to a lesser degree in Canada and the U.K. It’s aiming to raise capital for acquisitions because of existing opportunities.
“Try to stay positive,” said Finkbeiner. “You can’t change your environment, but you can change your attitude.”