Inland’s Lampi Sees Continued Growth for 1031 Offerings
The DI Wire caught up with Keith Lampi, president, director, and chief operating officer of Inland Private Capital Corporation, to discuss his history in the direct investment space, the challenges facing the 1031 exchange industry, and how Inland Private has evolved to respond to regulatory and market changes.
Can you share with us a bit about how you got started in the direct investment industry?
I started my career in the direct investment industry right here at Inland, so I guess you could say I am “homegrown.” In the beginning, I held an entry-level position in the asset management department. As I moved through the ranks, my passion and focus shifted almost exclusively to a new start-up enterprise we had created at Inland called “The 1031 program.” Fifteen years later, that same program is now Inland Private Capital Corporation (IPC), a company that has grown into a leader in the private placement securities industry and is the largest platform within the Inland organization.
As your firm has grown over the years, what changes have you implemented that impact the way your products are structured and/or sold?
As the IPC management team, we pride ourselves on being nimble and dynamic in our ability to respond to the ever-changing market trends. As a result, our company’s asset selection process has evolved dramatically over the years in response to macro-economic conditions and market demand. For example, during IPC’s early years, our platform focused predominantly on long-term net-lease assets in the retail and office sectors. Today, given where we are in the economic cycle, we have shifted our focus almost exclusively to assets in the multifamily, self-storage and healthcare sectors.
In addition, the structure of our products has been fluid to say the least, with the most notable change tied to the products’ fee structure. Over the past several years, we have been very focused on reducing the upfront cost structure associated with product offerings, which can have a beneficial impact on a product’s back end performance.
I understand you are actively involved with the Alternative and Direct Investment Securities Association (ADISA). What has your role been with the organization?
Yes, Inland and I have been involved with ADISA as founding members dating all the way back to when the association went by the name TICA and was exclusively focused on securitized 1031 offerings. Fast forward to today, ADISA has a broad range of membership sponsors, serves various product structures and has developed into one of the direct investment industry’s “go to” associations with a focus on education, networking and advocacy. I have had the honor of serving on ADISA’s board of directors since 2014 and will serve as the association’s president in 2018.
What would you consider to be the top three asset classes right now and why?
Given where we are in the economic cycle, my top three picks regarding asset classes are: multifamily, self-storage, and healthcare-related assets. Multifamily and self-storage each have “recession-resistant” operating characteristics, which we believe are essential to driving and capturing value appreciation over the long run. This is especially true now that cap rate compression has already occurred throughout most markets and sectors. Healthcare is an interesting add-on, as it provides income durability via long-term lease structures with stated rent increases, while also providing an investment play on the rise in healthcare needs and growing demand nationwide for medical office space.
Bringing all three strategies together, each sector was able to exhibit recession-resilient qualities during the last economic downturn. This was largely due to each sector riding the wave of demographic and life events demand drivers, rather than relying on economic expansion and growth as key drivers of performance. These non-market correlated demand drivers, along with strong operating fundamentals, position each sector well going forward.
With your focus on the securitized 1031 space, how do you see it developing? Will it continue to see upward momentum?
The response to this question hinges heavily on comprehensive tax reform and its potential impact on 1031 going forward. That open issue aside, I believe there will be a steady upward trend from a demand standpoint, which positions the space for continued growth. In many respects, this industry is still very much a play on demography. Aging baby boomers, who have been active landlords throughout life, continue to be compelled by the passive ownership and tax deferral strategy and solution that 1031 provides.
Having said that, the acceleration in demand that our industry has experienced brings forth certain tendencies many of us “veterans” have seen in the past. I think the space has come a long way over the last decade. The expansion and growth we have collectively experienced is a direct result of the many positive, investor-friendly changes we have incorporated into our product offerings over the years. It is important not to lose sight of that, and to remain committed to quality-focused diligence, both from a real estate perspective and sponsor review standpoint―especially as new participants enter the space. I remain optimistic about the industry’s future, however its long-term success will correlate with its collective participants’ ability to keep quality standards high and investor performance as priority number one.
How competitive is the acquisitions market right now? Has it been challenging to acquire assets that satisfy 1031 exchange requirements?
The market remains competitive, which makes it more challenging to find opportunities. For IPC, it is a game of numbers, meaning we look at many more assets than we bid on, and we bid on a whole lot more than we eventually buy. Having our finger on the pulse of the market positions us well, allowing us to uncover opportunities that meet our specific criteria in a hyper-competitive environment. The key that ties all of this together is maintaining a long-term minded, disciplined approach when evaluating opportunities. This approach has driven our success through various market cycles over the years.
IPCC is a sponsor of The DI Wire, and the Q&A was conducted as part of their standard directory sponsorship package.