At CenterSquare, 'boring' can be the wise investment path

CenterSquare Investment Management focuses on "real assets" such as real estate and infrastructure (think utilities, telecommunications towers, and airports).

This $8.2 billion firm is a quiet giant with headquarters in Plymouth Meeting. It runs money mostly for institutions, but there are ways to invest with CenterSquare through listed mutual funds. For instance, CenterSquare is contracted to run the Dreyfus Global Infrastructure Fund and the Dreyfus Global Real Estate Securities Fund.

Todd Briddell, CenterSquare's chief executive officer, grew up in Glen Mills and attended Garnet Valley High School. In 1993, he hooked up with his former Wharton undergraduate professor Scott Urdang, who had started a firm to invest on behalf of pension funds, endowments, and other institutional investors. Briddell succeeded Urdang as CEO in 2012, after Bank of New York purchased CenterSquare.

"Typically, institutional investors have a 6 to 10 percent allocation to real estate, and hire firms like ours to help them invest," Briddell said. "The bulk of our clients are institutions, including mutual funds that hire CenterSquare as the manager of the fund."

CenterSquare invests in what Briddell acknowledges are "boring" assets. For instance, it might buy portfolios of publicly traded real estate investment trusts, or REITs.

What are his investors worried about these days?

"The biggest concern that all investors have is where to put their capital in an interest-rate environment where yields are so incredibly low.

"They have to diversify. Will Twitter be here in 10 years? I don't know. Netflix? WhatsApp? No idea," he said. "But I can tell you that the Sydney, Heathrow, and Charles de Gaulle airports will still be around."

CenterSquare also invests in electric and water utilities, office buildings, and high-end shopping malls, such as King of Prussia Mall.

"We can put portfolios of assets together that can keep up with inflation. We look for total returns in the high single digits, and our historical 20-year average has been low double digits. It's lower today because all assets generate lower returns given interest rates and a low-growth environment."

CenterSquare invests particularly in health-care REITS and retail REITs anchored by store chains such as Acme and CVS. "We really like grocery- and pharmacy-anchored shopping centers, service-oriented with pizza and hair and nail businesses," he said.

"We separate high-quality malls from everything else and do not own companies unless they have the highest-quality malls."

According to regulatory filings, CenterSquare has owned, for example, Simon Property Group, which owns King of Prussia Mall; Macerich Co., which is redeveloping the Gallery at Market East with Pennsylvania Real Estate Investment Trust; and Taubman Centers, which owns the Mall at Short Hills in North Jersey.

"Across the country," Briddell said, "the biggest trend we're seeing is millennials prefer to live and rent in urban centers. Retirees and empty-nesters also are moving in from the suburbs. This urbanization trend has significant tailwinds due to demographics."

CenterSquare has owned Avalonbay Communities and Equity Residential, which develop multifamily buildings, regulatory filings show.

On interest rates, Briddell's mantra is "Don't fear the Fed."

"We've been talking about interest rates rising for five years. What are the forces pushing up rates on the 10-year Treasury bond? I don't think [the Fed] will increase rates in 2016," he said.

Still, many REITs have sold off on the expectation of rising rates.

"Theoretically, if the Fed increases rates, they see economic growth accelerating," Briddell said. "And in the long term, real estate assets, malls and office buildings, even multifamily assets, benefit from a strengthening economy."

Bill Stone, chief investment strategist for PNC, notes that the 2015 earnings season has all but wrapped up, with reports in from 92 percent of the S&P 500. Excluding energy companies, earnings were actually fairly healthy, growing 2.7 percent over the prior year, he said in a Friday research letter to clients.

"As we close the books on 2015, we conclude a year of weak sales growth, ongoing (excluding energy) margin expansion, and significant share repurchases. Looking forward to 2016, the numbers indicate to us that lackluster growth will drudge on, but is not indicative of recessionary levels."

earvedlund@phillynews.com

215-854-2808@erinarvedlund