Real Estate Private Equity Summit speakers to industry: “Middle market is robust, but requires highly efficient operations”

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The middle market in commercial real estate, (the secondary and tertiary markets where assets are generally under $50 million), is quite different from the gateway cities market (which includes New York, Chicago, San Francisco and Los Angeles), and the middle market requires a much higher degree of focus on efficient operations, Allegiancy CEO reported after summit.

The middle market in commercial real estate, (the secondary and tertiary markets where assets are generally under $50 million), is quite different from the gateway cities market (which includes New York, Chicago, San Francisco and Los Angeles), and the middle market requires a much higher degree of focus on efficient operations.

This was a key message of the “Finding Opportunities in the U.S. Middle Market” panel at iGlobal Forum’s recent 11th Real Estate Private Equity Summit in New York.

The middle market is much more the purview of smaller regional players, with knowledge on the ground, according to panelists.

Allegiancy CEO and panelist Steve Sadler said, “As commercial real estate leaders, we have to add more value, and we have to be more well-versed in the middle markets.” Sadler said, “If you are in midtown Manhattan, one property to another isn’t likely that different. In downtown Richmond, being just two blocks away can be mean radically different dynamics.”

As the leader of a firm successfully managing commercial real estate assets in the U.S. middle market, Sadler added, “Doing business in smaller markets requires extreme efficiency across operations. While you can purchase real estate at better capitalization rates in the middle markets, your actual realized yield will be much more dependent on your controlling operating factors.”

For example, in a gateway city, a real estate firm could be managing 2 million square feet of office space in a single building.

In the middle market, one could be managing 2 million square feet across 10 buildings, possibly across three cities. “All of a sudden, if you are not highly efficient in your operating costs, they quickly become a real drain on your portfolio returns,” Sadler said.

“Economy of scale strategy is an absolute ‘must’ on fragmented assets in secondary markets,” agreed panelist Ralph Rosenberg of Kohlberg Kravis Roberts.

In a gateway market, deals are regularly done valued in the hundreds of millions. If real estate pros can negotiate the difference of a few basis points, they can save $25 million. Meanwhile, at the operating level in the middle market, it takes a long time to save $25 million. Sadler explained: “You can’t do that with one good negotiation. You have to work hard all day every day. Some of the larger players get tired of keeping track of the nickels and dimes that make the secondary markets work.”

“Efficiency is heavily time-weighted. The opportunity costs for pursuing smaller deals are very real,” said Paul Vosper of Morgan Stanley.

Sadler’s company, Allegiancy, has a track record that demonstrates that middle market properties can be very profitable, even when market conditions are difficult –it’s done through excellent tenant service, careful operations, strategic evaluation, and efficient execution every day. As a result, Allegiancy has generated positive returns across virtually all of its properties, consistently outperforming its peer group every year.

Sadler concluded, “Imagine the possibilities for real estate owners in the gateway cities if they turned to a firm that already knows how to find efficiencies in a smaller building. Multiply that by the efficiencies that could be gained in 2 million square feet of space on one city block.”

The Allegiancy team is known for finding efficiencies without reducing quality wherever they go. At one property, for example, the signature monument sign told a story of wear and neglect. But the cost to replace it was at least $10,000, more than the owners could justify. From their personal inspection, the Allegiancy team determined that the sign’s oxidation could simply be buffed out. Instead of replacing a sign, they simply used existing staff to do that, and suddenly the sign looked like new, without new spending.

“If you take steps like this enough times across enough middle-market properties, it turns into real value. And that’s what we do every day at Allegiancy,” said Sadler.

Other themes discussed during the iGlobal conference included the real estate industry’s resistance to change and to the potential of technology. Keynote speaker Dean Adler of Lubert-Adler said, “Technology is underestimated as an agent of change in the real estate business. Get ahead of technology, or get killed.”

Adler also talked about the concept of “co-work space,” which has taken off with the
Millennial set. It is a new take on executive suites, in which free-lancers and start-up companies can coalesce in trendy workspaces with a Starbucks-like atmosphere. An office renter gets a desk and a work area, but also access to vibrant community space and the accompanying idea-sharing.
Allegiancy has long been a leader in utilizing technology to drive efficiency in commercial real estate asset management and in anticipating and preparing for changes in commercial office space usage.

***Sadler is available for interviews on these topics.***


Allegiancy is changing the business of asset management for commercial real estate owners and investors. With an advanced technology platform and singular focus on serving as the owners’ advocate, the company brings fresh vigor to an often poorly understood business. Combining its proactive Value Assurance? operational rigor with an intense focus on cash flow and profitability, Allegiancy is expanding on a track record of more than four decades of success.

Headquartered in Richmond, Va., and led by a team of seasoned professionals with more than 100 years of experience, Allegiancy manages properties that have outperformed their peers by 45 percent since 2006. The company has more than $300 million in assets under management (AUM) and delivers clients attractive returns and profitable, hassle-free investments in commercial real estate.

More information about Allegiancy may be found at To schedule an interview with Allegiancy’s leadership, contact Audrey Bevel at audrey(at)allegiancy(dot)us or 866.842.7545 ext. 204, or (804) 201-7161.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are based upon the Allegiancy, LLC’s (the “Company”) present expectations, but these statements are not guaranteed to occur. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. Investors should not place undue reliance upon forward-looking statements. For further discussion of the factors that could affect outcomes, please refer to the “Risk Factors” section of the offering circular dated January 14, 2014 and filed by the Company with the U.S. Securities and Exchange Commission on January 15, 2014. The offering circular, and any supplements or updates thereto, is available on the EDGAR system located on

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Stephanie Heinatz
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