Quick Reflexes The ability to be agile, be versatile, and make quick movements after a ball is hit can earn good fielders a Gold Glove. It can keep runners off the bases and limit the amount of run-scoring opportunities for the other team.
Sterling possesses the agility and versatility of a gold glover, which limits its risk in real estate. While Sterling’s conservative strategy requires that its own assets span geographic areas, product types, and asset classes, it does maintain agility in being able to jump in and out of certain markets. This helps it earn returns on par with other opportunity funds, Katz says.
Sterling’s agility and versatility certainly came into play over the past few years. The New York-based company has a real estate portfolio is now 75 percent multifamily and 25 percent commercial. But its split was closer to fifty-fifty in the past. The reason the company has pushed into multifamily: Sterling leaders see greater potential in this market because of rising interest rates, rising home prices, and demographics. “Baby boomers will exit single-family [homes] and look for properties where they don’t have to work on yards, and echo boomers will look for new households,” says Tarak Patolia, vice president of Sterling Equities, Inc., and head of the acquisition department for the Sterling American Property Funds.
As in most things Sterling does, risk is also a factor in staying in residential. “We believe residential is less risky than other opportunities,” Wilpon says. “If you have an office building with a couple of major tenants and they go bust, you’re receiving no rent and you don’t sleep at night. In residential, you spread your risk over 300 tenants.”
But the company says it’s not wedded to multifamily. “If there’s a downturn in one sector, we can always change,” Katz says.
Sterling also applies a diversified approach to its multifamily portfolio itself. (See chart, left.) The same is true in regions and product types. The company has between 15 percent and 25 percent of its properties each of the five main regions around the country. There is also a split among asset classes. “We are usually in Class B, but we are comfortable with Cs and As,” Osterman says.
Put this together with Sterling’s knowledge of management, financing, and construction and you have a team versatile enough to deal with a downturn in any sector. “We’re as comfortable in the boiler room as we are in the boardroom,” Osterman says. “We know how to operate all of these properties because we have done it in all property types, phases of the business cycle, and product classes.”
