By Christopher M. Wright

NAME: James Corl TITLE: Executive vice president and chief investment officer for real estate securities BORN : 1966 EXPERIENCE: Corl has been working in the REIT industry since 1993 when he started as an associate in the real estate investment banking group at Credit Suisse First Boston, specializing in REIT IPOs. He moved to Heitman/PRA Securities Advisors, a REIT fund manager, where he was a vice president and co-portfolio manager for two years. He joined Cohen & Steers in 1997 and has been in the CIO position since 2004.

Cohen & Steers is a trusted name, not only domestically, but also among international real estate investors, well-known for its U.S. and global funds. The company manages a number of real estate funds and has more than $34.6 billion in assets under management as of June 30. The company also has grown to become one of the largest players in the REIT investment industry, amassing assets and steady returns along the way.

Portfolio turned to James Corl, Cohen & Steers' chief investment officer, to discuss real estate securities and what sets the company apart.

Portfolio: Tell us what makes Cohen & Steers' real estate funds distinctive.

Corl: Cohen & Steers is the oldest and largest investment firm in the industry. In fact, our senior team has been working together for 10 years. As a result of our company's position, we're able to hire the best and the brightest from our competitors and the sell-side. In fact, our global real estate securities group has 40 people, which is the largest team in the industry.

We have the resources to provide more in-depth coverage of companies than anyone else. Our analysts know companies better, visit more assets and have a better relationship with management team members than any other firm. Our analysts know the history, markets and individuals, as well as how products react in different economic cycles.

Portfolio: When Martin Cohen was interviewed for this column in 2006, your company had just bought half of Houlihan Rovers in Brussels and opened an office in Hong Kong. Have you put any new infrastructure in place to support your global real estate investment efforts?

Corl: In the last few years, we've been on a dramatic hiring spree for the global team. We bought the other half of Houlihan and integrated it into Cohen & Steers, so Houlihan no longer exists as an independent entity.

Additionally, we opened a research office in London with a portfolio manager and four analysts, because it is the place to be for research. Also, we've continued to hire for the Hong Kong office.

Portfolio: What's a rational return expectation for global real estate securities as an asset class?

Corl: I think 10 percent to 15 percent a year on average over the next three years is a very realistic and very attractive expectation. Our core strategy is total return, so we don't care whether it comes in the form of dividend yield or capital appreciation. Most of our companies in the United States are REITs, so they have a dividend yield. Outside the United States, many firms don't have a yield, although the percentage of REITs in that mix is increasing.

Portfolio: There's talk of consolidation driving share price appreciation in global real estate securities. Which is the bigger story going forward: improving property fundamentals or consolidation in world listed property markets?

Corl: It's tough to generalize. Factors other than property fundamentals will be important in some places, but not consolidation. Property privatization and recapitalization is a big opportunity.

Property in some countries is not owned by real estate companies. For example, in Germany, property is mainly owned by steel companies, utilities, other industrial corporations and local governments. In Japan, banks and financial institutions are just beginning to sell real estate to specialized real estate companies.

Portfolio: What other investment themes do you find compelling?

Corl: Cyclical recovery will be important in certain countries where the economy has not grown for 10 or 15 years and they're just coming into their own. For example, in Germany, it took 15 years to digest the reunification, but now there's room for rents to rise across the board.

Additionally, economic growth in China is driving tremendous demand growth in Hong Kong, and we don't see that abating for many years. In Moscow, you've got a booming economy but no modern office space suitable for Western firms. In Scandinavia, there's a lot of oil and gas activity, which is driving a local economic boom.

Portfolio: How about demographic shifts and urbanization?

Corl: Urbanization is the whole essence of what's happening in China. They're building cities from scratch.

However, our global strategies are mostly in developed markets. We have a handful of investments in mainland China, but we're not heavily invested there. We have more in Hong Kong, which is a developed market.

Portfolio: In the financial markets, you hear the term "supply-constrained" a lot. Does that have a lot of meaning at Cohen & Steers?

Corl: Supply constraints are the most important theme for us. Real estate revolves around supply and demand. Generally, demand is stable over time, even in a recession.

We look for places where new supply is extremely difficult to create or deliver, such as high cost areas that do well over the long-term. London's West

End is an extremely supply-constrained market. It's where everyone wants to be and it's very hard to develop space there.

Portfolio: You mentioned that you're mostly investing in developed markets. What's your take on emerging markets?

Corl: There's no question we'll soon be entering emerging markets. We're looking at them closely. There are a lot of opportunities there, especially where property development is lagging behind the spending power of a growing middle class.

Portfolio: Recent commentary from Cohen & Steers indicated that fund performance suffered because the company underweighted the Australian market, where conditions improved, while overweighting the U.K. market, which suffered a downturn. Do you try to time that kind of rotation? As long-term investors, are you impacted by this cycle?

Corl: We're definitely value-oriented and long-term focused. The more inexpensive stocks become, the more we buy and trim them as they outperform. Our average holding period is approximately three years. We want to own securities where you can own $1 of real estate for 70 cents, not $1.08.

In the U.K., stocks have been trading at big discounts to the value of the underlying real estate. We bought it because it became cheaper. We underweighted Australian property stocks because we viewed them as expensive, but they continued to go up.

Sometimes we buy and sell too early. However, paying more than what it's worth is speculation and not the bet we like to make.

Portfolio: The market focuses on the use of leverage to enhance returns in closed-end funds (CEFs). As a group, they fell in the last few years because Federal Reserve hikes in short-term interest rates were perceived to threaten CEF profitability. Basically, it is more expensive debt, with fewer profits. Can you comment on the appropriate use of leverage in CEFs and whether the market perceives risks to profitability correctly?

Corl: It's in large part a misperception. The leverage used in closed-end funds is very modest, and investors clearly overreacted.

The closed-end market is a retail market, not a market where institutions are active, and the research on it is not very good. Most of the investors are individuals who don't have the resources to ascertain whether leverage is going to be a problem or not.

Most of the debt is long-term fixed rate. Changes in short-term rates don't have a big effect on CEF profitability.

Portfolio: Are there any risks in international investing you are especially attuned to?

Corl: Currency risk—you can be right on the real estate and wrong on the currency and not do well. That's been the case with respect to our position in the Australian market.

Portfolio: Does Cohen & Steers have any new products planned?

Corl: Yes. We've talked publicly about long-short strategies and more structured products, like our income builder product with an option overlay. We expect to use REITs as a raw material for more structured product solutions for investors going forward.

Portfolio: How much appetite have you seen for the Cohen & Steers Institutional Global Realty Shares fund (GRSIX), with international holdings and a $3 million minimum investment requirement?

Corl: Generally, our institutional client base has rebalanced REITs in the last few years because they have outperformed.

Now with REITs down, we're starting to see them reallocate back toward REITs that have underperformed the broader market significantly in 2007.

The asset class is definitely moving rapidly in the direction of globalization. Most of our U.S. clients have converted—or are actively evaluating the conversion of—their U.S. real estate securities allocation into a global allocation.