Q&A: Bill Walton and Keith Gelb of Rockpoint reflect on the past 30 years in business together and the opportunity set ahead
By Andrea Zander
Bill Walton and Keith Gelb, managing members and co-CEOs at Rockpoint, reflect on Rockpoint’s journey throughout the years, what major changes have been observed over the years, emerging opportunities in the real estate sector and more.
Can you provide a brief overview of Rockpoint’s journey from inception to where the firm stands today?
Bill Walton: Our team has been investing together for 30 years. After co-founding a predecessor firm in 1994, we continued in 2003 as Rockpoint, largely the same firm. It was a defining moment, and not just in name alone. From the outset, we knew the type of firm we wanted to build — focused, research-driven, disciplined, and guided by principles of integrity and excellence to generate compelling risk-adjusted returns. These time-tested principles have enabled us to create value for our investors while allowing our people to build meaningful careers.
We’ve grown Rockpoint, expanded our offerings and capabilities, and refined our approach. We’ve also navigated periods of market uncertainty — from the fallout of the Savings and Loan crisis in the early 1990s, to the dotcom bust in 2000 and the ensuing recession, the great financial crisis (GFC), the COVID-19 pandemic, and the most recent capital markets dislocation. Through the decades we have stayed true to our founding principles, and we believe some of our best returns have been during these periods of market dislocation.
Keith Gelb: Along the way, we made several strategic decisions to sharpen our focus, all while partnering with some of the most sophisticated investors in the world. After the GFC, we decided to invest solely in the U.S., where we believe our market knowledge, experience, investment approach and relationships gave us a significant competitive advantage. Nearly a decade ago we established Rockhill Management, our property services affiliate, to enable us to more directly and efficiently implement asset-level business plans and drive additional value at the asset level. Starting with a handful of employees 30 years ago, today the Rockpoint and Rockhill team has grown to nearly 200 people. Our senior investment professionals have an average tenure of 16 years at Rockpoint, supporting our initial vision to create a “forever firm.” It is humbling to look back over the last three decades and think about how much we’ve grown and evolved, all while staying true to the core values on which our firm was founded.
What were some of the key milestones in the firm’s history that significantly shaped its growth and strategy?
Gelb: As a hybrid allocator-operator, many of the so-called “defining moments” that make Rockpoint what it is happen in the day-to-day operations of the firm and within the investments we own and manage. However, a few particularly significant milestones stand out and frame our evolution.
We adapted our model early on so that the investment team owns a deal from origination through disposition. This ensures accountability and brings together all the skills and knowledge bases of our team while combining responsibilities for underwriting an investment and executing the business plan. We’re now able to continue this model because of our team’s long tenured experience and the longevity of the firm.
In 2014, we diversified our offerings with the introduction of a lower-risk, lower-return platform, which today largely takes the form of funds-of-one focusing on industrial and for-rent residential investments. These offerings have been highly complementary to our flagship opportunistic program and continue to be an important part of our strategy.
Walton: Another transformative moment for Rockpoint was the establishment of our in-house property services affiliate, Rockhill, in 2015. This vertically integrated platform continues to be meaningfully additive in managing our investments and creating value. Today, Rockhill services more than 70 industrial, multifamily and office properties, providing premium amenities and customized services across our portfolio.
In 2018, Blackstone made a permanent, passive minority equity investment in Rockpoint. This partnership further strengthened and institutionalized our firm and has helped us achieve the goal of building a “forever firm.”
Over the years, a few milestone transactions have been emblematic of our approach. One example is our 2018 investment in Spring Creek Towers, the largest rent subsidized housing community in the United States, and the subsequent 2021 recapitalization of the property in a single-asset fund structure.
What major changes have you observed in the market over the years?
Walton: When we started the company, real estate was a more opaque business with minimal third-party data available. This instilled in us a discipline of doing our own broad-based proprietary research and sourcing our own data at a micro level through brokers, property owners, tenants, and others across our network. Today, the quantity and accessibility of third-party data has dramatically increased, which has made real estate more transparent and competitive than ever before.
There are also significantly more players and capital now, many launched since the GFC, than there were 30 years ago. Despite this change in the market, we continue to create and use proprietary macro and micro data in our investment process.
Gelb: In this environment, we have consistently employed our granular and bottoms-up approach to analyzing markets and individual opportunities. We believe this methodology has become an increasingly important competitive advantage, as real estate is still a local business where boots on the ground matter, and discoverable inefficiencies continue to exist. While advanced technologies can make analyzing high quantities of data more efficient, a ground-up approach is more relevant than ever before at this time when asset selection is paramount. Firms like Rockpoint can shine based on the strength of relationships, local market knowledge, and the expertise gained over decades of investing — a combination that enables leading firms to identify and act on unique, alpha-generating opportunities. Substantive relationships, reliability, and an address-level investment approach are principles that we have always prioritized and which we believe will continue to underpin our success and differentiate us from our competitors.
What emerging opportunities do you see in the real estate sector?
Gelb: With $3 trillion in commercial real estate (CRE) loans maturing in the next five years, we’re in a significant period of dislocation. In addition to looming debt maturities, property owners are confronting stagnating cash flows and values that have declined. Also, the increased cost of borrowing, reduced debt proceeds, and other market factors are likely to result in forced sales. In our view, some of Rockpoint’s best performance has come during similar periods of dislocation.
With our disciplined, bottoms-up approach, and investment markets that are exhibiting different degrees of activity and rent or rate growth, we view today’s environment as a “stock pickers” market. While others might largely pursue macro investing, we also focus at a granular level on market-specific and asset-specific factors that we believe reveal inefficiencies and create buying opportunities. We believe there are pockets of strength where we can find opportunities to invest at attractive levels and add value at the asset level, particularly in both for-rent residential and industrial. We also expect to see select opportunities in hospitality and credit, as well as deep distress opportunities within office and life sciences.
Walton: While our primary focuses the last five years have been “merchant” industrial and for-rent residential development, we have also pursued a focused investment theme in recent years within leisure hospitality, including single assets, as well as a unique company, Margaritaville Holdings. In 2022, Rockpoint made a strategic investment in Margaritaville, a leisure brand related primarily to the lodging and active adult residential sectors, where we are leveraging our network of relationships and local real estate expertise to help grow the business. This focused approach has proven to be a profitable strategy, and we believe there will be additional select actionable opportunities in this sector going forward.
How has the firm addressed challenges in the market over the last 30 years? How have you mitigated risk?
Gelb: We’ve learned time and again over the past 30 years that investors value discipline and risk assessment and management as important factors to maximize risk-adjusted returns. The value of discipline was especially evident during the dotcom bubble. At that time, we saw firsthand many real estate firms that suffered because they had invested late, and without appropriate risk assessment and management in place, and in assets that the market deemed as popular or “trendy.” Despite proactively investing in the Bay Area at the time, Rockpoint wasn’t materially impacted, and the way we navigated that cycle substantiated the value of our approach. While we typically have a view on macro issues, we also abide by a data-driven and granular investment approach. We diligently analyze demand/supply fundamentals, the physical asset and the related value-add proposition, micro-market locations, operating expense structures, various revenue drivers, and how we can cost effectively utilize capital expenditures to increase value. We consider ourselves fundamental value investors, which we think is particularly important in the current environment in which different property types and regions experience different supply and demand dynamics, and managers cannot simply rely on declining interest rates and cap rates, and robust rent or rate growth, to generate strong investment performance.
Walton: Our opportunistic platform also enables us to shift our focus from and to different geographies and sectors given current market dynamics, and this flexibility has been important to our success over the past three decades. For example, coming out of the financial crisis we focused on hospitality and office in New York City with demonstrable success. Then, during the recent COVID-19 pandemic, we shifted to primarily merchant development within multifamily, industrial and single-family rental investments in Sun Belt markets given the attractive supply/demand fundamentals and unlevered return potential. Equally as important are the decisions we have proactively made not to invest during periods of time when we didn’t have confidence and conviction based on our disciplined and bottoms-up investment approach.
As we look ahead, we do see a challenging market, but we also see opportunity. We are experiencing a valuation reset and what will matter most as we invest in the future will be staying true to how we got to where we are and who we are as investors.
Looking back, what are you most proud of after 30 years?
Walton: When we started Rockpoint, we wanted to be successful investors, underpinned by a culture of excellence and integrity — not just internally, but in how we worked with our investors and partners, and with all our relationships. We realized early on that successful real estate investing is also a people business, and it was important to us that, as we grew as a firm, our core values remained front of mind.
Gelb: While our primary goal, of course, is to maximize risk-adjusted returns for our investors, we want to always be known as honest and reliable partners, teammates and businesspeople. This has been a core pillar of the firm, and it continues to drive how we act internally, in our markets, and with our investors. I’m proud that we have stayed true to our values as we’ve grown and have developed a talented team that shares these values.