Institutional investors are financial groups who make long-term investments, usually in major commercial projects like office buildings and shopping malls. They are scarce to almost non-existent in Alaska, however.
Why? A lot of reasons: Alaska is too far from Wall Street. The market is too small. It’s risky. It’s cold and dark, and everyone lives in igloos.
This really isn’t far from the image these firms have. They are almost all east coast-based and many don’t know much about what’s beyond the Rockies, much less Alaska.
There is one firm, however, that is doing deals here in Alaska. It even has an office. It is Washington Capital Management Inc., of Seattle. Jan Sieberts, a veteran 40-year Alaska former banker, is the company’s Alaska representative.
Sieberts has guided Washington Capital Management into investments, with Alaskan partners, in some of Anchorage’s biggest commercial real estate deals in recent years, like the two Centerpoint office buildings in the city’s midtown.
In real estate investment circles Washington Capital Management is a regional company specializing in west-of-the-Rockies, and area that is terra incognito for the firm’s big east coast competitors. Washington Capital Management is based in Seattle with offices in Anchorage, Spokane, Portland and, in recent years, San Francisco and Los Angeles.
Sieberts says his company doesn’t mind being considered a west coast hick by its competitors. Business is bad where the competition lives, and better in the west, and in Alaska, where Washington Capital does business.
Alaska constitutes about 10 percent of Washington Capital’s business, Sieberts said, but the Alaska investments and loans are performing reliably and well, and that’s important in these uncertain times.
Although Washington Capital Management is an equity investor and a lender it is technically an “investment advisor,” on portfolios for clients. Among others, these include union pension funds, including in Alaska. Pension funds are traditional, long-term institutional investors, and Washington Capital’s Alaska clients include some of the construction trades.
This helps stimulate Washington Capital Management’s interest in doing projects in Alaska.
“These guys (the clients) are builders. They want to see their pension funds invested here in building things they can work on,” Sieberts said.
Institutional investors like Washington Capital Management are vital to the economic health of communities. Traditionally they are insurance companies or pension funds who invest, through loans or equity stakes, for the long-term. Loans for real estate can be for 25 or 30 years, for example. Or these groups make equity investments, often aligned with local partners in investments. Washington Capital Management does this in Alaska.
This is important because in states like Alaska that are remote from major financial centers and have relatively small economies, commercial banks have limited capital and typically like to spread their available funds across as many loans as possible, and for relatively shorter terms such as 10 years or 15 years. That way there is more diversification and less risk.
This is the case for even large national banks that do business in Alaska, like Wells Fargo and KeyBank.
Typically the commercial banks spread their capital, and their risks, by partnering up with an institutional lender or investor which takes the longer term, and sometimes larger, part of a loan. For example a commercial bank might come in for 20 percent or 25 percent of a loan for 10 or 15 years, while the institutional lender takes 75 percent or 80 percent of the loan for 25 years, and often buys out the bank’s minority interest when its shorter-term loan matures.
This arrangement helps the commercial banks because they get maximum use of their funds, spreading them across more loans. It helps the regional economy because more deals get done, allowing for more buildings to get built to allow for business expansion. When businesses can expand the economy benefits.
The banks “originate” the loans, putting the deal together, and work to bring in the long-term lender.
Alaska, however, has had a dearth of long-term lenders in recent years, and with the exception of Washington Capital Management the state has basically had to take up the slack.
In the early 1980s there were large pension funds and insurance companies investing in Alaska, but when the savings and loan crisis hit followed by the sharp 1986 Alaska recession these institutional investors departed and never returned.
With their own capital limited, Alaska banks urgently needed something to take the place of the departed institutional investors to get development going again.
At the urging of the banks the Alaska Industrial Development and Export Authority, a state corporation, stepped in and developed its commercial loan participation program, much like Alaska Housing Finance Corp. stepped in on the residential lending side.
AIDEA, the state corporation, became the long-term partner with the banks on many loans. It is one of the state authority’s most successful programs and now the source of most of its earnings, part of which are paid to the state treasury in an annual dividend.
Sieberts, then with National Bank of Alaska, was instrumental in getting this AIDEA program going. He worked with Dave Rose, AIDEA’s director in the early 1980s, to set up the authority’s business participation lending program.
Washington Capital Management was formed in 1977 in Seattle by private investors, although it has since become employee-owned. When the company became active in Alaska and one of its first deals was financing of the Marriott Residence Inn on 36th Avenue in midtown Anchorage, near BP’s corporate offices. This hotel is owned by NANA Regional Corp. The company also financed two Office Depot retail buildings.
When Washington Capital Management decided to open an Alaska office in 2004 it asked Sieberts, who had just retired from Wells Fargo, to join the company. Once aboard with Washington Capital Management, Sieberts helped put together three large office buildings in Anchorage’s midtown, the JL Towers, JL Towers and Centerpoint West. Local developers John Rubini and Leonard Hyde, and two Alaska Native corporations, Chugach Alaska Corp. and Bristol Bay Native Corp., are also partners with Washington Capital Management in the buildings.
Washington Capital Management made a loan to finance one of the buildings but invested in the two others as an owned. The company owns more than 50 percent in one building and less than that in the other, with the partners owning the remainder.
The development of buildings like these, which cost $70 million to $90 million, is important to the economy, Sieberts said, because it gives major companies the space they need. It anchors them in the community, reinforcing the economy with high-paying management jobs, he said.
“You need quality buildings like these to attract international companies,” Sieberts said. Having ample space in the building is important. “These companies don’t want their employees running up and down elevators all the time,” he said.
Washington Capital Management has also financed medical buildings and has invested in the $28 million long-term acute care hospital, St. Elias Specialty Hospital, in a partnership with Dr. David McGuire, a local surgeon. Providence Health Systems operates the facility.
AIDEA’s loan participation program is considered very successful but financing large commercial projects like these is not its niche. AIDEA’s business participation loans are typically smaller and are targeted to small and medium-sized business expansion. Alaska banks like Northrim Bank and First National Alaska, and the Alaska branches of Wells Fargo and KeyBank, are active in AIDEA’s program.
Sieberts believes AIDEA should expand its horizon and partner with institutional investors like Washington Capital Management in larger real estate development projects.
“I think people our company can bring a lot of expertise in real estate to the table. We have a lot of experience in real estate and we would be able to bring in quality projects, which would make AIDEA’s portfolio stronger and more diverse,” Sieberts said.
Also, Washington Capital would be able to invest 50 percent equity in projects like these, a much higher percentage and for longer terms than the Alaska banks can do or are willing to do, he said. That could add a lot of security to AIDEA’s portfolio.
Tim Bradner can be reached at firstname.lastname@example.org.