The DI Wire had a chance to speak with ADISA president Keith Lampi ahead of ADISA’s 2018 Spring Conference held next week in Orlando, Florida.
Lampi, the president and chief operating officer of leading 1031 exchange provider Inland Private Capital Corporation, details ADISA’s agenda and advocacy focus for the coming year, challenges that could impact the alternative investment space, and which investment product types are expected to rebound in 2018.
What is on your agenda for your term as president?
ADISA has experienced robust growth over the past several years. What once was a niche organization representing only a narrow focus of product types, has evolved into an umbrella association covering a diverse membership base of a myriad of product types and member categories which span the distribution chain. As an association, our vision for 2018 will be focused on embracing this broad spectrum of product diversity and leveraging it, driving success throughout the three key principles of the organization – education, networking, and advocacy.
Increase Member Participation: It is incumbent upon the leadership team of ADISA to strive for increased participation across membership, and this means much more than just an increase in member numbers. It takes numerous forms and begins with the thoughtful approach that goes into setting the conference agenda, including members in helping design each event, and involving committee participation. All of which must occur in each key membership category. All of the above sets the stage for the association’s ability to deliver its value proposition to membership, by creating the right educational content, networking opportunities, and setting the advocacy agenda.
Enhanced Communication: We also have a heightened focus on communication efforts, both inside and outside of ADISA’s membership. From an educational perspective we are gearing up to launch a new virtual resource library. All educational materials including articles, magazines, video content and webinars will be organized online and easily accessed by members. With respect to advocacy, the Legislative and Regulatory Committee has been one of ADISA’s most active committees. However, we have not gotten the word out about our own successes as much as we should. Communicating these advocacy efforts with greater regularity is something we will be focused on going forward. I believe this will build our advocacy prowess even more.
Event Rebrand: ADISA’s summer event, formally known as the Due Diligence Forum has seen growing popularity over the years, largely because it truly has been an event focused on product due diligence, approaches to evaluating products, and evaluation of macro-economic trends. As a result, ADISA’s board of directors revaluated the event’s naming convention and it will now be known as The Alternative Investment Research & Due Diligence Forum, which more appropriately captures the value proposition the event brings to membership.
I believe ADISA’s future is brighter than ever, which is largely due to its first-rate staff, prior leadership, and expansive membership base. My goal is to add to the solid foundation that was previously established and build upon the association’s incredible success.
What public policy issues is ADISA now tracking and planning on focusing on from an advocacy perspective?
We continue to track the DOL fiduciary rule with the delay in the second tranche of implementation, the entrance of the Securities and Exchange Commission in the discussion, and the states stepping in with their own fiduciary regulations and the ongoing lawsuits.
We continually track information coming out of Congress, the Securities Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), as well as the North American Securities Administrators Association (NASAA) for new issues or regulations being proposed throughout the year. This includes exam priorities from both the SEC and FINRA, the ongoing monitoring of private placements by FINRA, concentration limit concerns from NASAA, the movements of BDC modernization, any changes to the accredited investor definition, and any other concerns which may arise during the year that might affect our member base.
How will the changes to the tax code impact alternative investments?
The tax code has given a significant benefit to investors in pass through entities that invest in commercial real estate. It is interesting insofar as the investment structure through which an investor interacts with the investment strategy now impacts the taxability of the eventual returns.
In reality, it remains to be seen whether investors will ultimately change their relative return expectations based upon this shift in taxability. That said, investors are obviously focused on their real after-tax return. Given this fact, one can deductively conclude that changes in the tax code provide additional support to the economics of commercial real estate products in both REIT and partnership structures.
Do you expect the rising interest rate environment to impact the industry in the coming year? If so, how?
It is clearly challenging to identify investment opportunities and deploy investment capital in an environment one might consider fully valued. Couple that with rising interest rates, and you have to be focused on the possibility that CRE valuations could decrease.
That said, real estate, like other asset classes is cyclical in nature. Because of all of these factors, there will be winners and losers. Winners in my mind include: operating assets, some ground up development and shorter term or variable rate real estate debt. It is important to be nimble in this type of market. Long term bets need to be positioned to weather and persist through any cyclical down turn in real estate fundamentals.
The SEC recently shared its 2018 national exam program examination priorities. How do you expect these priorities to affect alternative investment professionals and sponsors?
The SEC’s exam priorities focus on a number of different areas, but likely the most impactful are those focused on both the costs of investing (wrap fee programs in general) and advisers who have not yet been examined by the SEC.
With the confluence of both NTM 15-02 and last year’s implementation of the DOL fiduciary rule, both alternative sponsors and many advisors have had cause to reevaluate both how they were executing on their businesses and how that impacts the end user, the investor.
The confluence of these two regulatory changes which impact sponsor and advisor and clients differently, has generally accelerated migration of advisors’ business from commission to fee-based.
With the SEC’s published priorities, we expect to see continued emphasis on fee levels and overall clarity of disclosure for issuers. For advisers, there is likely to be increased regulatory focus at a time when they are both working very hard to serve their clients well and maintain a healthy practice. This is still a transitional time for those who are doing their very best to help investors across the country meet their financial goals.
From my own professional side, as a leading sponsor in our industry, we expect to continue to work in this newly minted “fiduciary” environment and truly strive to bring our best to support the financial advisers’ evolution through this regulatory transition.
Do you expect investments in Section 1031 exchange offerings to continue to increase in quantity, and perhaps even more so than prior years since tax reform is now concluded and like-kind exchanges were primarily unchanged?
By most accounts, the securitized 1031 market is poised to see another consecutive increase in 2018. With questions regarding tax reform behind us, product sponsors can now exclusively dedicate their attention toward creating product, which at the moment is an industry focal point as a supply/demand imbalance currently exists. This industry has always been driven by demography, whereby aging property owners seek passive ownership of real estate as they sell assets they had previously actively managed.
In addition, the securitized 1031 industry has matured a great deal since it began close to 20 years ago. Product structures have improved, fee structures have compressed, and a broader array of asset types are represented. All of these have increased product reception by many new distribution partners.
In effect, what once was considered a niche product, is beginning to become more and more mainstream. I see this phenomenon continuing to gain steam, which should drive industry-wide capital raise velocity for years to come.
Non-traded REITs, once a very popular product, have cooled, but can an uptick occur in 2018? What’s the story there?
With larger institutional sponsors coming into the market, we are seeing financial advisors reengage with the evolved NAV REIT structure. Clearly there is demand for the diversification benefits that come from investing in commercial real estate.
For the IBD channel that has more experience with these programs, financial advisors are adjusting from previous product experiences, and good progress is being made from the point of adoption. However, IBD channel advisors also have materially more choices (interval funds, BDCs, preferreds & variety of private placements, etc.). If you look at the industry in aggregate, while non-traded REIT sales are well off their highs from several years ago, we are seeing an uptick for product sponsors with the right structures.
Information like the above questions is often learned about at your conferences throughout the year. What do you expect attendees to take away from ADISA’s 2018 Spring Conference?
ADISA’s Spring Conference is less than a week away (March 26-28) at the Rosen Shingle Creek in Orlando, Florida. We expect between 500-600 attendees with strong participation across our membership base, and a very healthy broker-dealer to sponsor ratio of 1:1.4.
Many of the questions above will be covered in great depth as the conference planning committee has set a robust agenda. Educational tracks will focus on REIT’s, BDC’s interval funds, 1031 exchanges, energy products, BD/RIA practices, private equity, new products, technology and security. We also have Rudy Giuliani, 107th Mayor of New York (1993-2001) scheduled as the keynote speaker. All in, I believe it is going to be a great event!