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Last week at the Distinguished Speaker Series, the Baker Program in Real Estate had the pleasure of hosting John Livingston, the Co-founder and Chief Executive for AECOM Capital. As shared by Mark Hughes, 2018 Baker Program student who had lunch with the speaker, “Mr. Livingston reminiscenced his experience of partaking in the transformation of Times Square because he felt that he was giving back and really helped to transform NYC”.
Mr. Livingston shared his recipe for success, simply ‘work harder and smarter’. According to him, development is a team sport and one needs to get along with people. He considers himself to be essentially a development person since his background is in development. He uses the same mentality while perusing deals for AECOM Capital.
At AECOM Capital, the investment strategy reduces risk by pursuing deals that consisting of construction and entitlement guarantees. In some situations, AECOM will rent their balance sheet at the rate of 1%, where the company provides a backstop. They operate in a more hands on basis and are involved in daily, weekly meeting, raising debt and equity and the guarantees. AECOM’s business model is more detail oriented and not transactional, as in the case of raising capital via private equity. Matthew Green, Baker Program student Class of 2017, stated “what stood out about John Livingston was how nimble he and his firm are. The variety of deals and developments that they have completed since 2013 speak for themselves”.
Sunset Time – West Hollywood, California
Speaking on the current market conditions, John stressed the importance of being careful, stating that the slow down exists essentially in the $5 million homes that have a per sq.ft. price of $6-10k price. For example, AECOM’S Sunset Boulevard Project in Los Angeles (40 high end condos) has square foot prices of $2-3k, and expected healthy sales movement. He succinctly pointed out that people look at NYC as the indicator of the real estate market but the real estate all over the country doesn’t go as per NYC standards. John does see the development cycle coming to an end in NYC, but other gateway cities having sufficient opportunities in the near future.
An awakening call came from John’s acknowledgement that the debt market has fallen off the cliff. According to his current experience, most banks have tightened their spigot, reducing their flow of debt capital; most of the debt being provided comes in the form of hybrid products. John believes that the industry has been trying to convert real estate into liquid assets with the expectation to make quick returns by churning their investments. According to him, the way to make money in real estate is by holding as asset long term, and treating like a bond where you cash flow is considered like clipping coupons.
In the future, AECOM Capital has a Europe fund, a PPP fund and Real Estate fund in its plan. We hope to host John again on the Cornell Campus. His perceptions of the market conditions and the incredible work of AECOM Capital enlightened, and stretched the thinking and teaching of Baker students’ current coursework.