fpl global business updateworld growth is expected to rise from 3.1 percent in 2016 to 3.5 percent...
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FPL Global Business UpdateThe balance of 2017 and into 2018
GLOBAL BUSINESS UPDATE
2
123 N. Wacker Drive | Suite 1900 Chicago, Illinois 60606
Ferguson Partners: +1 312 368 5040 FPL Associates: +1 312 368 5088
fpladvisorygroup.com
September 26, 2017
Dear Clients and Friends:
Calendar year 2017 has been built on the unexpected! Populism is taking hold in developed
markets with Britain’s decision to exit the European Union and the election of Donald Trump as
President of the United States, as examples.
While 2017 has seen the global economy show improvement, the future remains unclear with
questions focused on global monetary policy. The administration in the US is talking stimulus
and, with near full employment, it is unclear how inflation will respond. Markets are also still
adjusting to the changes implemented by the European Central Bank. Furthermore, Asia is in a
period of adjustment — the Bank of Japan has made significant changes to its monetary program
in an effort to control appreciation of the yen, and China is dealing with rising corporate debt.
We hope the insights and trends outlined in this update will help you better navigate the change
and uncertainty we have come to expect.
Best regards,
William J. Ferguson Michael A. Herzberg
Co-Chairman and Co-CEO Co-Chairman and Co-CEO
FPL Advisory Group FPL Advisory Group
CHICAGO HONG KONG LONDON NEW YORK SINGAPORE TOKYO TORONTOSAN FRANCISCO
FPL | 3
I. World Economic Viewpoint
Global economic activity
is picking up with a long
awaited cyclical recovery in
investment, manufacturing,
and trade. World growth is
expected to rise from 3.1
percent in 2016 to 3.5 percent
in 2017 and 3.6 percent in
2018. Stronger activity and
expectations of more robust
global demand, coupled
with agreed restrictions
on oil supply, have helped
commodity prices recover
from their troughs in early
2016. Financial markets
are buoyant and expect
continued policy support in
China and fiscal expansion
and deregulation in the
United States. If confidence
and market sentiment remain
strong, short-term growth
could indeed surprise on
the upside.
But these positive
developments should not
distract from binding structural
impediments to a stronger
recovery and a balance of
risks that remains tilted to
the downside, especially
over the medium term.
Structural problems — such
as low productivity growth
and high income inequality —
are likely to persist. Inward-
looking policies threaten
global economic integration
and the cooperative global
economic order, which have
served the world economy,
especially emerging market
and developing economies,
well. A faster-than-expected
pace of interest rate hikes in
the United States could tighten
financial conditions elsewhere,
with potential further U.S.
dollar appreciation straining
emerging market economies.
More generally, a reversal
in market sentiment and
confidence could tighten
financial conditions and
exacerbate existing
vulnerabilities in a number of
emerging market economies,
including China — which
faces the daunting challenge
of reducing its reliance on
credit growth. A dilution of
financial regulation may
lead to stronger near-term
growth but may imperil global
financial stability and raise the
risk of costly financial crises
down the road. In addition,
the threat of deepening
geopolitical tensions persists,
especially in the Middle East
and North Africa.
Great Expectations Rebuffed
The year began with a
hopeful bang. In the first few
months of 2017, a recovery in
earnings growth, better global
economic data and great
expectations for an increase
in fiscal spending, tax reform
and deregulation drove a
rally in global risk assets.
Today, the stock market
continues to give the benefit
of the doubt to the global
economy and the Trump
administration. However,
amid a steady stream of
Positive developments should not distract from binding structural impediments to a stronger recovery and a balance of risks that remains tilted to the downside.
GLOBAL BUSINESS UPDATE
4
scandalous headlines coming
out of Washington, D.C., many
investors are beginning to
question how much longer
the eight-year-old bull market
can last.
The current turmoil in D.C.
makes the second half of the
year more difficult to forecast.
Sluggish global growth, low
interest rates and modest
inflation are expected. But
importantly, the timing
of fiscal policy overhaul,
infrastructure spending, tax
reform and deregulation
has become murky, which
means any impact on growth,
rates and inflation may not
materialize until at least the
second half of 2018. In the
meantime, although global
growth has improved and
investor sentiment remains
strong, the long-term outlook
for economic growth remains
sluggish. And in the short
term, there are few clear
catalysts for a shift back into
reflationary Trump trades and
related investments.
II. Global Real Estate Outlook
It is striking that while
concerns around geopolitics
are at unprecedented levels in
recent times, confidence in the
ongoing flows of capital into
real estate remain high. The
current macro-environment of
geopolitical uncertainty and
fragile economic growth is set
to remain a strong feature and
real estate will remain in risk-
off mode. Global cross border
investment into real estate is
holding up given the chase for
yield and real estate’s position
as a safe haven, and there
will continue to be a ‘flight
to quality‘ by the majority of
institutional investors.
The volume of capital seeking
a limited supply of ‘core’
properties is forcing investors
to consider new strategies,
lowering return expectations
or accessing higher yields by
exposing themselves to more
operational risk and emerging
alternative real estate sectors.
Either way, finding the right
risk/return balance will be
a key challenge that will
be felt throughout the real
estate value chain. And to add
another further complication
into the mix, this challenge
will be played out against
a backdrop of an industry
whose center of gravity is
shifting from a financial asset
to an operational business
where the customer is king.
The political and economic
uncertainty of the past year is
destined to persist throughout
2017 and beyond, but real
estate continues to attract
capital and demonstrate its
resilience as an investment
asset class.
It is striking that while concerns around geopolitics are at unprecedented levels in recent times, confidence in the ongoing flows of capital into real estate remain high.
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According to Real Capital
Analytics (RCA), global
investments in income-
producing assets totaled $825.7
billion in 2016, a remarkable
figure in the era of Trump and
the Brexit vote, given the anti-
globalization rhetoric in the US
and across Europe. The 2016
total represents a decline of just
15 percent on record-breaking
2015. It was still 25 percent up on
the 10 year average for global
deal volume. What’s more,
consensus forecasts indicate
a similar volume this year as
investors allocate capital to
real estate for the security of
income it offers against other
asset classes. And so, though
“real estate is profiting from the
geopolitical uncertainty and
risks in the market” there is a clear
“flight to quality” when it comes
to investment.
III. Global Human Capital Trends
A. Regional Outlook
AMERICAS
United States
Change is afoot! More
firms than ever expect their
customers to purchase their
products/services through
a new provider, expect a
tech-based non-traditional
competitor to enter their
industry, and expect a large
existing player from another
industry to enter their sector.
As it relates to the global, real
estate investment managers/
real estate private equity
firms, portfolio management
hiring has been quite active,
as has demand for capital
raisers, which has pretty much
been incessant since the
downturn in 2008. Many more
of these GPs are now trying to
determine how to raise retail
capital, whether it’s through
non-traded REIT vehicles such
as Blackstone has launched,
or alternative channels.
Domestic and international
investment managers are
building out specific corporate
infrastructure roles including
finance, legal, information
technology, human resources,
and compliance, among other
disciplines. There continues to
be a focus on chief operating
officers/chief financial officers
Change is afoot!
More firms than
ever expect their
customers to purchase
their products/
services through a
new provider, expect
a tech-based non-
traditional competitor
to enter their
industry, and expect a
large existing player
from another industry
to enter their sector.
GLOBAL BUSINESS UPDATE
6
who can bring expertise in
managing enterprises.
From a debt perspective,
while commercial banks and
insurance companies have
been the primary sources
of real estate financing, and
the CMBS market has been
reasonably dormant, there
has been a build-out of the
new shadow banking world,
in addition to an increasing
number of commercial
mortgage REITs. There is
clearly interest in yield
driven credit products. Debt
investment professionals are
in demand.
Given the millennials’ interest
in working/living/playing in
urban locations, mixed-use
urban development has been
quite active, and hiring has
reflected this. This initially
happened on a bi-coastal
basis, and is now occurring
across a variety of other cities
ranging from Dallas and
Austin, to Atlanta and Tampa.
By sector type, residential
will revolve around the urban
consumer, with higher density,
combining live/work/play,
with growth in healthcare and
assisted living. In the office
sector, more collaborative
work environments will
become common, with offices
as high-spec imaginariums,
and localized work-hubs/
satellite offices with shared/
serviced offices common.
Relative to retail and logistics,
e-commerce will continue to
become a bigger part of the
retail experience. Shopping
centers will become mixed-
use urban hubs, embracing
broader lifestyle needs
of communities.
Furthermore, demand
is high in the industrial
sector, principally driven by
e-commerce/logistics, where
development talent is being
recruited. And the multifamily
business, with demographics
pushing continued growth
in the sector, is still a good
a property bet, but certain
markets are overbuilt, and
one has to be careful from a
development perspective.
The other “big push” is
infrastructure, where
institutional investors are
looking to invest globally.
Global and regional leaders
are highly coveted. In fact,
many of the large real estate
investment managers are
transitioning into “real assets”
frameworks, combining
their real estate activities
with infrastructure. One just
needs to look at Blackstone’s
announcement relative to
raising $40 billion for a global
infrastructure fund.
Interestingly enough, for the
first time since 2008, there are
cracks in the foundation. Retail
real estate is in the doghouse,
as is suburban office, and
Many of the large real estate investment managers are transitioning into “real assets” frameworks, combining their real estate activities with infrastructure.
Given the millennials’ interest in working/living/playing in urban locations, mixed-use urban development has been quite active, and hiring has reflected this.
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hospitality to a lesser extent.
Hence, these are opportunities
for the value add investors,
and there is demand for
acquisit ion/redevelopment
talent. And from a healthcare
perspective, independent
living and assisted living are
attractive opportunities, for
those who have experience
in managing these types
of assets.
In the restaurant sector, there
will continue to be a fair
amount of consolidation, with
private equity firms buying
restaurant chains in order to
reposition and re-capitalize
them. There continues to be
a convergence of concepts,
where the opportunity seems
to reside between value and
fresh and healthy. CEOs who
can turn around/reposition
businesses are sought
after! As it relates to the
gaming business, the casino
companies are continuing
to spin out their real estate
portfolios into separate
publicly traded vehicles,
principally REITs, where
Boards and management
teams are being recruited.
Other noteworthy trends
include diversity recruitment,
both at the Board and C-suite
levels, as investors become
increasingly attuned to
the fact that a diversity of
perspectives leads to better
business performance.
Generational change, as the
baby boomers retire, is a
huge focus, as both public
and private organizations
evaluate their next generation
of leadership, and those
qualified for succession, are
groomed appropriately. And
there is a huge focus on
Board recruitment, because
of increasing activism as well
as Boards that are either long
tenured or have too many
Board members beyond the
normal retirement age.
Canada
Canada continues to be
a bifurcated market. For
example, such markets as
Alberta, Saskatchewan,
and the East Coast, that are
natural resource dependent,
are in challenging condition.
Office properties in Calgary
are running at 35% vacancy. In
contrast, other major markets
like Toronto and Vancouver are
thriving, particularly relative to
core urban properties. Large
pension investors such as
CPPIB, Ontario Teachers, and
Oxford, are buying and trading
assets. Most are focused
on urban opportunities,
particularly office, industrial,
and mixed-use developments.
Retail real estate, suburban office, and to a lesser extent hospitality, are in the doghouse.
Generational change, as the baby boomers retire, is a huge focus, as both public and private organizations evaluate their next generation of leadership
There is a
tremendous amount
of infrastructure
capital from the big
Canadian investors,
being deployed
around the world.
GLOBAL BUSINESS UPDATE
8
There is considerable
immigration and foreign
investment in these markets.
Relative to talent demand
in Canada, investment
and development, asset
management, and finance
are the hot functional areas.
The hospitality sector is
reasonably active, both from
an operational and investment
perspective. And there is
a tremendous amount of
infrastructure capital from the
big Canadian investors, being
deployed around the world,
with the correlating demand
for investment and asset
management executives.
Latin America
Despite some of the challenges
arising from the Trump
administration relative to
Mexico, there are a number of
US investors active in Mexico.
The focus is on urban retail,
data centers, and distribution/
logistics. Development and
acquisit ion/redevelopment
executives are in demand. Other
parts of Latin America, such as
Brazil, have been sufficiently
cyclical and challenging from
a geopolitical perspective,
that experienced investors
have entered and exited those
markets opportunistically.
Those astute investors, who
have managed through the
cycles, have done well.
ASIA PACIFIC
This region is probably most
easily defined as Japan, and
then non-Japan Asia. As it
relates to non-Japan Asia,
China continues to be the
most important part of the
economy. Capital controls in
China have started to restrict
new outflows of capital from
the smaller and medium-
sized capital sources. So the
larger insurance companies
will be the primary sources
of capital. Capital is already
sitting offshore, and the focus
will be a recycling of deals
rather than new transactions.
From a human capital
perspective, there continues
to be demand for capital
raising professionals. There
is also demand for open-
end core product, and
hence individuals with that
experience set. And an
increasing number of firms
are returning to the value
add space, assuming more
risk for better returns. Since
deal flow remains high, there
is demand for acquisitions
professionals. And there will
also be increased deal flow
from cross-border deals both
within Asia as well as into Asia
from overseas.
Relative to Japan, the market
is plateauing somewhat. There
is demand for core and value
add product, with domestic
investors in particular. As
across Asia, there is an
oversupply of capital and
under supply of assets.
Consequently, demand for
investment professionals
who can access and
generate potential pipeline
US investors active in Mexico are focusing on urban retail, data centers, and distribution/logistics.
FPL | 9
is high. Niche investment
opportunities continue to be
popular, especially operating
platforms involving hospitality,
logistics, and healthcare.
Some newer property types
are also becoming active,
ranging from student housing
and self-storage to solar and
infrastructure. In addition to
operational exposure, investors
are taking on more regional risk
and looking beyond the main
gateway city of Tokyo, and more
into markets like Osaka, Nagoya,
Fukuoaka and Sapporo.
With a lack of hard assets
in the market some major
private equity real estate
players have been turning
to more corporate driven
acquisitions to secure assets
and portfolios, with a number
of public to private and de-
listing strategies employed
this past year.
However, tourism is big in
Japan. Targeting over 40
million visitors by 2020, which
is approximately double the
inbound traffic today, domestic
and international hospitality
investors/brands are looking to
expand their footprint in Japan.
EUROPE, MIDDLE EAST, AND AFRICA
The Brexit vote has resulted
in one of the cornerstone
economies leaving the
European Union. With the
elections in the Netherlands,
France, and Germany, the idea
of other countries following
the UK’s lead has reinforced
the mood of uncertainty that
still hangs over European
real estate despite better
economic conditions than
anyone had anticipated in the
immediate aftermath of the
UK’s shock EU referendum
result in June 2016.
Deal volume slumped by 41
percent in 2016 compared
with 2015, while there was
less banking debt available
for developers, especially
those exposed to leasing risk.
Investors remain uncertain of
the ramifications of the UK
leaving the EU, while potential
vendors are unsure whether
or not to sell assets at the
current level of slightly softer
pricing. By contrast, Germany
has taken over from the UK as
Europe’s investment haven.
€60.2 billion of commercial
property was traded in
Germany last year, compared
with €59.9 billion in the UK.
Across Europe, there seems to
be a focus on Core+ and Value
Add real estate. Given Brexit,
there is more hiring activity on
a pan-European basis, outside
of London, and in Germany
and France in particular. In the
quest for yield, there is also
increased interest in investing
in operating assets such as
student accommodation, PRS,
hospitality, and self-storage;
logistics continues to be the
favored asset class, which is
mirrored internationally. Beds and
sheds are the order of the day!
Tourism is big in Japan, with the goal of doubling the number of visitors by 2020.
Given Brexit, there is more hiring activity on a pan-European basis, and in Germany and France in particular.
GLOBAL BUSINESS UPDATE
10
B. Other Global Human Capital Trends
From an executive
compensation perspective,
while different global
markets are in various
stages of expansion and
contraction, most public and
private firms are focused on
creating competitive pay-
for-performance packages.
Retaining and incenting
top performers is a critical
mission. So this requires the
creation of performance-
based cash and equity
participation programs, which
pay out for performance,
and also include important
retention characteristics.
Many private real estate
companies are in the midst
of transitioning equity/
ownership to the next
generation of management,
oftentimes due to founding/
senior partners approaching
retirement. This can be a
complicated initiative and
one that potentially impacts
governance, ownership, and
organizational structure, and
compensation arrangements.
The emergence of equity
transitions and corresponding
incentive plans is challenging
common conventions
regarding the overall
economics available to top
executives and rising stars.
Relative to our leadership
consulting business, there is
a focus on CEO succession
planning, as the baby
boomers begin to retire.
However, there is also time
and effort spent on coaching
newly appointed CEOs, who
have no prior experience
“in the corner office.” And
as a corollary to this, talent
management is a key area
of focus, as companies are
more sensitized to developing
multiple generations of
leaders. And developing
corporate cultures, where
people can work collectively
for the benefit of clients as
well as the company, with
teamwork and collaboration
being rewarded, is also a big
area of focus.
For our management
consulting business, clients
continue to focus on enhancing
revenue and managing costs.
And we are assisting clients
in determining distribution
channels for raising retail
capital, as well as assisting
real estate investment
managers/private equity firms
in developing capabilities
for global infrastructure
investment. And on the cost
side, there continues to be
a focus on organizational
structure, and headcount,
in order to drive profitability
and efficiency.
Benchmarking financial
performance and
organizational structure —
namely staffing levels —
also continues to be an
area of focus as real estate
companies aim to optimize
their businesses. These
exercises are also useful when
thinking about how best to
grow/scale existing strategies
and create new business lines,
as well as if/how additional or
new forms of compensation
are justified.
Retaining and incenting top performers is a critical mission.
FPL | 11
IV. Conclusion
We live in a world of
great a geopolitical and
socioeconomic uncertainty.
However, there is little that can
be done about factors beyond
our control. Unlike 2008, most
firms have much stronger
balance sheets, and are being
increasingly conservative
relative to taking risk.
On the other hand, there
is capital available and
opportunity starting to
emerge. So short of some
exogenous event, the well-
capitalized firms will continue
to take advantage of a variety of
investment opportunities. For
the global firms, continuing to
develop people who have had
experience across multiple
markets, functional disciplines,
and property types, will be the
key to success.
For the global
firms, continuing to
develop people who
have had experience
across multiple
markets, functional
disciplines, and
property types, will
be the key to success.
GLOBAL BUSINESS UPDATE
12
FERGUSON PARTNERS
Executive Recruitment
UNITED STATES
William J. Ferguson,
Co-Chairman & Chief Executive Officer
Gemma Burgess, Managing Director
Sarah Cullins, Director
James D. Dell’Olio, President
Travis Kononen, Managing Director
Radhika Papandreou, Senior Director
Amanda Pigott, Vice President
David Thalhamer, Senior Managing Director
Leanne Tomar, Director
Trina Wright, Director
INTERNATIONAL
ASIA
Peter Rackowe, President - International
Patrick Balfour, Director
Max d’Ambrumenil, Managing Director
Martin Eastgate, Director
CANADA
Mark Ross, Managing Director
Michelle Rutledge, Vice President
EUROPE
Serena Althaus, Senior Managing Director
Rachel Polkinghorne, Senior Director
Leadership ConsultingAngela Castellani, PhD,
Senior Managing Director
Dominic Cottone, Managing Director
Camille Lee, Vice President
FPL ASSOCIATES
Compensation ConsultingJosh Anbil, Senior Managing Director
Jeremy Banoff, Senior Managing Director
Austin Morris, Vice President
Lindsay Pankratz, Director
Anthony R. Saitta, Managing Director
Melissa Thelen, Director
Organizational, Financial & Strategic ConsultingMichael Herzberg,
Co-Chairman & Chief Executive Officer
Josh Anbil, Senior Managing Director
Erin Green, Director
© 2017 FPL Advisory Group. The Ferguson Partners recruitment practice consists of five affiliated entities serving FPL’s clients around the world: Ferguson Partners Ltd. headquartered in Chicago with other locations in New York and San Francisco, Ferguson Partners Canada Co. in Toronto, Ferguson Partners Europe Ltd. headquartered in London with a Japan branch located in Tokyo, Ferguson Partners Hong Kong Ltd. in Hong Kong, and Ferguson Partners Singapore Pte. Ltd. in Singapore. Ferguson Partners Europe Ltd. is registered in England and Wales, No. 4232444, Registered Office: 100 New Bridge Street, London, EC4V 6JA. Ferguson Partners Singapore Pte. Ltd. is registered in Singapore, Business Registration No. (UEN) 201215619H, Employment Agency License No. 12S6233. FPL Associates L.P., the entity which provides consulting services to FPL’s clients, is headquartered in Chicago.
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Ferguson Partners
With an emphasis on the right executive fit,
Ferguson Partners offers services in executive
recruitment, as well as leadership consulting.
FPL Associates
Focusing on a wide array of business needs, FPL
Associates assists with the assessment, design and
implementation of compensation programs. We
also partner with clients to develop strategies and
structures to drive competitive performance.
FPL is a global professional services firm that
specializes in providing executive and Board search
and leadership, compensation, and management
consulting solutions to the real estate and a select group
of related industries. Our committed senior professionals
bring a wealth of expertise and category-specific
knowledge to leaders across the real estate, infrastructure,
hospitality and leisure, and healthcare services sectors.
Comprised of two businesses that work together,
FPL offers solutions and services across the entire
business life cycle:
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