BLUEPRINT: The house that Jack built

Jack Chandler spent nearly a decade in Asia for global fund management firm LaSalle Investment Management, building a $12bn business with more than 200 staff across six offices. He's not done building. Chandler spoke recently with PERE about his ambitions in the region, why he's not convinced on India and the importance of selling the merits of a deal before the elevator reaches the ground floor. PERE Magazine, April 2009 issue

Jack Chandler almost turned his back on real estate back in the mid 1990s. “The market conditions were so bleak that all of us who had been in the industry for six or more years did some soul searching,” Chandler recounts.

Jack Chandler

Seeing what he described as between a quarter and a third of the property professionals around him quit the marketplace, a young Chandler, armed with an MBA from Harvard Business School and an industrial engineering degree from the University of Massachusetts, “strongly considered” a different line of work. His decision not to quit real estate, Chandler argues, was a key turning point of his career.

Pinning his career prospects on profiting from real estate's cyclical nature, Chandler opted instead to see through the US trough and stick with his employer, the Chicago-based real estate investment firm LaSalle Investment Management. The decision has paid off – 23 years after joining the firm, Chandler is chief executive officer for Asia Pacific, presiding over a platform that manages $12 billion in assets across six funds including three pan-Asia closed-ended opportunity funds, two Japanese logistics vehicles and an open-ended core Asian fund. He tops an organisation of 200 staff in the firm's Asian business spread across offices in Tokyo, Singapore, Hong Kong, Shanghai, Seoul and Melbourne.

We bring new people in. This isn't an old boys club where we smoke cigars in wood panelled rooms.

Few would dispute that Chandler is the main driving force in building LaSalle's Asia platform. But this building is not yet complete.

Looking forward, Chandler is determined to increase LaSalle's Asian exposure from roughly 25 percent of the firm's assets under management to 35 percent within the next three to five years. LaSalle Investment Management, which is owned by global property services group Jones Lang LaSalle, currently manages $41 billion of real estate across North America, Europe and Asia Pacific for commingled funds, separate accounts, securities and high-net-worth individuals, although 62 percent of its investors are pension funds.

Sitting in a meeting room of the upmarket Island Shangri-La Hotel in Hong Kong just hours after speaking at February's PERE Forum: Asia event, Chandler is still in a talkative mood.

Most of the 150 delegates have left the 56-floor hotel, but Chandler spends the next two hours dissecting the two-day event and his feelings on the market ahead. He is emotive on a number of subjects. Investment opportunities in Japan excite him, but he is unconvinced about those in India. He is ever responsive to the increasingly stringent needs of his limited partners and calming the nerves of young credit crunch-startled executives within the business is taking up his time. Bad valuation practices across the globe are vexing him.

On first impression, the silver-haired, softly-spoken six-footer, is humble, verbally measured but very accommodating, even when it is clear he would rather avoid certain questions, particularly those about his professional regrets. Approximately 30 hours earlier, chairman of Hang Lung Properties, Ronnie Chan, told delegates at the PERE Forum that he could not respect anyone in the market who has made no mistakes.

By that token, he would respect Chandler, who agreed to share a few of his errors with PERE.

Sober acknowledgement

As in the mid-1990s when he was in the US, Chandler is now facing a real estate downturn, only this time the banking crisis has left no corner of the globe untouched. Chandler says market participants initially hopeful that Asia would be “decoupled”
from the problems emanating from the US have come to a “sober acknowledgement of reality” this year.

Everything waits for our investors. Including internal calls, including [Jones Lang LaSalle chief executive] Colin Dyer.

This reality, he argues, is twofold. Firstly, the debt capital market is very much global, and secondly, the world’s largest economy (the US) cannot stall and avoid impacting the world’s large manufacturing and exporting economies. “The US economy is bigger than the economies of the second, third and fourth-biggest economies combined. There was a lot of naivety around,” he explains.

Gross domestic product growth in China and India, to take two obvious examples, is expected to fall from highs of 10.8 percent and 8.9 percent, respectively, to 6 percent and 5 percent in 2009, according to the Economist Intelligence Unit.

Chandler’s team is well positioned to capitalise on the coming distress. Last September, LaSalle closed on $3 billion of equity
for its LaSalle Asia Opportunity Fund III. Capital commitments came from a variety of major endowments and pension plans.

Six months on and the fund has 80 percent dry powder. Chandler says: “We started battening down the hatches in quarter
four, 2007. By virtue of our global platform we could see the liquidity issues emerging from other parts of the market.” What came next was a period of “de-risking” and “pruning” of the portfolio through sales and dramatic reductions in new investments.
The firm spent $4 billion in Asia in 2007 after spending $2 billion in 2006, but only $600 million in 2008. So far this year, it has spent nothing.

Chandler is part of LaSalle’s Asian leadership triumvirate which also includes managing director Phillip Ling, who joined from Lend Lease in August 2007, and Ian Mackie, LaSalle’s Singapore-based chief investment officer and head of private equity,
who joined the firm in 1978. The new fund has invested so far in China, Korea, Hong Kong, Singapore and Japan, but it is the latter that Chandler sees as holding the best investment prospects in the immediate future.

Jack Chandler

He argues that Asia’s most mature economy has been shrouded in secrecy, making investment from international firms previously tricky. But this opacity is slowly changing, with organisations such as the Investment Property Databank making significant in-roads in terms of gathering valuable Japanese market information. Assisted by 14 institutional investors, IPD has been releasing direct property investment indices in the country since 2003.

“In the UK, people are willing to make derivative trades based on IPD. In Japan, the IPD does not have the history and depth of data to make it something you’d want to trade on but it is still directionally useful,” he says.

Approximately half of LaSalle’s existing Asian portfolio is in Japan and, reflecting this, half of its 200-strong team work from Tokyo. India, on the other hand, does not suit LaSalle’s risk profile. The firm has not spent a single dollar in the country since
Chandler first boarded a plane to open up shop in Asia in 2000 and that is not likely to change soon.

Chandler says he understands why others were attracted to the country: “The aggregate risk package was mitigated by very strong growth. In a world of capital excess there was lots of liquidity and growth but in today’s world of capital shortage, India’s issues will become more acute.”

Chandler says ownership issues, entitlement issues, regulatory issues and currency issues are among the factors keeping LaSalle out of India.

Changing minds

Chandler says different geographies aside, the basic rules governing supply and demand always lead the firm’s investment
strategy. It’s all about “the amount of capital compared with the number of assets that need capital. What is happening now is
that we and other providers of capital are resetting what we think are [the right] returns. The term ‘distress’ is not that useful
as it relates to a time when capital was simply much more plentiful.

In today’s environment all providers of capital are selling a view of what kind of return they want and the sellers of the [real
estate] are evaluating whether this is pricing they are willing to accept or not. It’s not the same bid as it was a year ago but you
know what? Oil is not $120 a barrel and the FTSE is not at 7,000 anymore either.”

If you can't explain the merits of a real estate deal in less than five minutes then it is not that interesting.

LaSalle, Chandler argues, is changing with the times. To adapt to current market conditions, the firm in Asia has increased the required return it is looking for on certain deals and has changed its underwriting practices to reflect this. Chandler says debt is still available but because it is now more expensive, the proceeds of a debt-driven deal are half to two-thirds of what they were in 2007.

As a result, LaSalle is looking at lower geared transactions. Despite this, Chandler is still telling his investors to expect an IRR of at least 20 percent for the third opportunity fund, in line with funds one and two.

LPs have been impressed by the house that Jack built. Michael McCook, chairman of Global Real Estate Strategies and former head of real estate at CalPERS, told PERE that one of his last projects before retiring from the US pension fund in 2006, was to evaluate LaSalle’s opportunity fund programme.

He was minded to approve investing with Chandler and his team. One year later and CalPERS did not deviate from McCook’s sentiment making its first investment with the firm in its latest Asia vehicle. McCook described Chandler as conscientious, smart and very communicative. The latter was a buzz word at the PERE Forum in Hong Kong, with LPs urging GPs to keep communicating

Off the stage, when PERE taunted him into declaring who he would speak to first if called on the phone simultaneously by his boss, a vendor or an LP, Chandler calmly replied: “Everything waits for our investors. Including internal calls, including [Jones Lang LaSalle chief executive] Colin Dyer.”

In today’s uncertain climate Chandler argues it is even more important to be available to LPs. He estimates that he spends 25 percent of his working time with them, an increase on last year as their thirst for information increases. He says that while
much of the news in today’s world is not positive, this level of openness is what LPs deserve and will require from the groups that they continue to support in the future.

This keeps LPs repeating and increasing their investments with LaSalle, he says.

The setup

Chandler sits on an 11-strong global management committee. He is one of four who joined in the early 1980s. The others include chief operating officer Kim Woodrow, chief executive for Americas Peter Schaff, and the firm's chief executive officer Jeff Jacobson, although the latter took a hiatus from the company between 1997 and 2000. Chandler is adamant that this committee is dynamic. “We bring new people in, Phil [Ling] for example. This isn't an old boys club where we smoke cigars in wood panelled rooms.”

The committee meets monthly usually via videoconferencing owing to different time zones. Chandler says each member brings something different to the table which helps LaSalle evolve its strategy. Chandler describes chief operating officer Kim Woodrow as the “herder of the cats” and Stan Kraska, chief executive of LaSalle's securities business, as “the analytical leader”.

Even when I was living in Asia, I was spending a third of my time outside of the region. It seems like a big issue but we have a terrific management team in place. I ask my guys, ‘What's different?’ and the answer is ‘not much’.

More regularly than his global duties, Chandler leads La-Salle's Asian investment committee. This is the final set of traffic lights for any investment proposal. Chandler says for every 100 deals considered, only a few percent make this two-hour weekly meeting.

The rest are filtered out by various pre-investment committees. Chandler warns: “If you can't explain the merits of a real estate deal in less than five minutes then it is not that interesting.” He cannot tolerate staff “regurgitating reams of facts that really aren't central to a deal.”

This leads him to reveal an unofficial test he likes to use on his team – the “37th floor test”. When in an elevator, if he can be convinced into doing a deal before it reaches the ground floor from LaSalle's 37th floor office at Republic Plaza, Singapore, it's a deal worth doing.

If someone fails the test, they are invited to analyse the merits of the investment further. This test, he declares, has spread to LaSalle's offices in North America and Europe.

Despite his prowess, Chandler is humble enough to recall career regrets when asked. In 1998, back when Chandler was managing director of acquisitions for East US, he oversaw the $100-persquare-foot purchase of a 500,000-square-foot office in Boston, with a yield of about 7 percent. The former tenant had paid $18 a square foot. LaSalle managed to re-let the property for $30 a square foot. Rather than seek a sale in a rising market, LaSalle held on to the property for too long and missed its exit window. Chandler laments: “We didn't sell it, the tech-wreck happened and it was worth $100 a square foot again [and rents of $18 per square foot]. We failed to execute on the basic investment thesis. It was always supposed to have been a trading asset.”

His candor also takes us to Singapore where he oversaw the purchase of an office development land plot. After the acquisition, as the project construction began, rental levels in the area rose from $6 a square foot to $15 a square foot but fell below $10 a square foot when the credit crunch set in. He admits that when the building opens it will not hit its underwritten rents, and in hindsight the acquisition price looks a lot less attractive.

Sweet home Chicago

Last year, Chandler brought his near-decade residency in Asia to a close. His move back to Chicago prompted peers to question how he could possibly manage such a large platform from a different time zone.

This is a question he fields regularly: “Even when I was living in Asia, I was spending a third of my time outside of the region,” he answers. “It seems like a big issue but we have a terrific management team in place. I ask my guys, ‘What's different?’ and the answer is ‘not much’.”

Chandler adds to his argument by stating that he set up the business nearly a decade ago and is now in a position where its success is not dependent on his residency. “Ninety-eight percent of my calls for the last decade have been on the cell phone anyway.” Despite this, he does admit to having to include working on Asian time to his already lengthy days. 


Jack Chandler

2009 Continues in the post while commuting between Chicago and Singapore
2000 Chandler is appointed chief executive for Asia Pacific, moves to Singapore
1999 LaSalle Advisors merges with Jones Lang Wooten to become Jones Lang LaSalle. LaSalle
Investment Management is formed to manage the merged business's investment programme.
1986 Chandler joins LaSalle Advisors
1986 Chandler graduates from Harvard Graduate School of Business with an MBA
1981 Chandler graduates from the University of Massachusetts with a Bachelor of Science in
Industrial Engineering
Tennis Chandler plays in an amateur league for a team called Skokei in Chicago
Average working day
5.30am Wakes up, goes to the gym
7.30am First emails and phone calls to Asia/North America
9.00am Meetings either with LPs or internal executives
12pm Lunch
12.15pm Works though investment committee papers/correspondence
4.15pm Internal meetings
7.30pm Dinner with clients
10.00pm Home/all electronic devices are switched off

LaSalle Investment Management

Founded: 1978 (As LaSalle Advisors. Becomes LaSalle Investment Management when Jones Lang
Wooten merged with LaSalle Partners to become Jones Lang LaSalle in 1999)
Headquarters: Chicago
AUM: $41 billion
Parent Company: Jones Lang LaSalle
Offices: 11 in North America, 7 in Europe, 6 in Asia
Closed-ended funds: • LaSalle Income & Growth Fund series, value-added US focused fund
• LaSalle Canada Income & Growth Fund series, value-added Canada focused fund
• LaSalle European Growth Fund series, value-added pan-European focused funds
• LaSalle UK Ventures Fund series, opportunistic UK funds
• LaSalle Asia Opportunity Fund series, opportunistic Asia Pacific funds
• LaSalle Medical Office Fund I, II, value-added North American fund
• LaSalle Mexico Fund, opportunistic Mexico fund
• LaSalle German Income & Growth, value added German fund
• LaSalle German Retail Venture, German retail value added fund
• LaSalle French Fund II, France opportunity fund
• LaSalle Paris Office Venture, Paris office value added fund
• LaSalle Japan Logistics Fund series, opportunistic Japan logistics funds
Open-ended funds: • Open-ended fund managed jointly with the property investment subsidiary
of Prudential
• Open-ended fund focused on Europe and managed jointly with Aviva Investors.
• Open-ended fund focused on the US and managed jointly with Bank of America Capital