Taylor Mammen

As senior managing director at RCLCO, Taylor Mammen manages the firm’s institutional investor advisory practice. But Mammen did not always know that he would wind up in private real estate. During his undergrad years, he studied politics and economics, and then spent his early 20s working government jobs in Washington, DC. At the Massachusetts Institute of Technology (MIT), where he attended for a graduate degree in city planning, he worked on case studies with municipalities.

But while working on a thesis paper on innovation in real estate development, he concluded that private developers and investors are far more adept at addressing different needs, including environmental and social issues. City planners and other public sector decision-makers often think in four-year terms, but Mammen found that private sector investors are forecasting demand for their properties over many years, even decades. That’s when he decided he should learn from them, he said.

Since 2006, he has worked at RCLCO. Since helping to launch the institutional advisory practice in 2011, he has sourced and underwritten close to $5 billion in equity commitments on behalf of public pension funds. Since the pandemic sequestered people in their homes, he has focused on identifying properties and property types likely to thrive in a “post-COVID” environment.

CIO: What (actionable thing) have you learned over the course of your career that has proven itself this year?

Mammen: It doesn’t matter how elegant, accurate, or sophisticated the model, process diagram, contract, or organizational chart, in the end, a strategy has to be executed by humans. Humans, moreover, are mortal, flawed, and motivated by complex factors that they don’t even always recognize. I have observed that poor execution by imperfect teams or people upends great investment strategies (right product/right time) nearly every time, while even mediocre investment strategies (wrong product/wrong time) can often be salvaged by great execution. This becomes extremely important in a crisis such as COVID-19 and the resulting recession: everything is challenged, but only the best teams will mitigate losses and identify opportunities.

When evaluating managers or investment strategies, as an investment industry we, of course, always underwrite leadership and organizational effectiveness, but I don’t think they’re always given sufficient weight in our decisions. These should be gateway issues, as, this year in particular, I’ve seen numerous examples of expert teams that are mitigating challenges by being proactive and creative in the face of shutdowns and revenue loss, while simultaneously gearing up to take advantage of attractive investment opportunities, and middling teams that have not been able to rise to the challenge. Once again, therefore, I’m reminded of the importance of conducting deep diligence into the people that will be executing investment strategies, by thoroughly reviewing their histories and track records, conducting meaningful and searching interviews with references, paying attention to the important clues to character that inevitably arise during underwriting and negotiations, and evaluating what great leaders are doing to ensure that their lessons learned and experience are passed to younger colleagues.

CIO: What investments (specific securities or sectors) look good to you now? And why?

Mammen: As a real estate consultant, I’m biased, but real estate investments in general look fairly attractive. At least in the US, real estate didn’t get oversupplied during this previous cycle and property values and performance are so far holding up fairly well during this crisis—at least outside of hospitality and retail. Real estate is therefore doing what it’s supposed to do for many institutional portfolios: providing both stable valuations and cash flow relative to other asset classes.

Within real estate specifically, certain property types (industrial, multifamily, data centers, for example) have better market and investment fundamentals than others (retail, hospitality), but we’re probably equally focused on geography—where the properties are located. Real estate investments in metropolitan areas positioned for growth of “21^st-century jobs” likely outperform, and areas around the highest quality employment nodes should offer the best investment opportunities across nearly all property types. The metro “winners” will likely be those offering the highest quality of life to educated and creative workers, striking the best balance between business friendliness, high-quality schools, abundant recreational and cultural amenities, and attractive housing and neighborhoods. The winning areas within metros are likely to be where the best jobs cluster, which could be in urban centers but also, probably increasingly, in suburban job centers on major transportation infrastructure with good access to housing. Paying attention to these areas, and how metro areas are evolving, should result in good investments in all types of real estate.

CIO: What ones don’t? And why?

Mammen: Prior to the Great Financial Crisis, cap rates (a measure of income yield, the primary real estate valuation metric) for institutional real estate properties, traded within a relatively narrow range by both geography and property type. Since then—and we think COVID-19 only accelerates this trend—cap rate spreads between different geographies and property types have widened significantly as the market expects meaningfully different outcomes for different real estate investments. We think this market evaluation is rational, though may still underprice the risk in geographies or property types unlikely to benefit from sustained demand. Property values in geographies experiencing limited job growth, or growth primarily in low-productivity jobs, may still be too high relative to the risk that tenants won’t be there to rent space. Moreover, the data indicates that the US simply has too much retail and office square footage relative to demand, particularly in older or borderline-obsolete formats, and, for many properties, any price above underlying land value is likely too high. We’re therefore primarily focused on “long” investment strategies—going where demand is strong and sustained—rather than solely looking for value in underappreciated properties or markets.