Q. What are the core responsibilities of Northern Trust’s Real Estate Services Group?
Michael E. Papierski: Real Estate Services provides support to our Trust and Estate Service groups. As trustee or executor, we are really the owner of these properties, so we think like an owner – always trying to maximize value for our clients. Our work includes managing real estate assets held in trust and estates, selling assets when there is a need to and acquiring assets when appropriate. We also manage new home construction and major renovation projects primarily for our disabled minors and adults. We do some land planning when it’s appropriate, with the idea that through land planning, you can double or triple the value of the real estate for the client’s benefit. That, of course, depends on many factors like the economy, so as you can imagine, we are doing less land planning today.
We also provide real estate advisory services for our clients, including property review and analysis, and strategic planning for real estate assets. We make recommendations on strategic alternatives and help execute those strategies.
MICHAEL E. PAPIERSKI is a senior vice president and serves as head of the Real Estate Group in the Personal Financial Services division. Prior to joining Northern Trust as a vice president in January 1998, he was a vice president at American National Bank. Mike received a bachelor’s degree in accounting from Southern Illinois University and law degree from John Marshall Law School. He is a licensed real estate broker and a member of the National Trust Real Estate Association, the Chicago Association of Realtors and the Hispanic Lawyers Association of Illinois. In addition, he served as a board member of the Certified Commercial Investment Member Institute (CCIM) from 2004 to 2007 for the Chicago Chapter and is a candidate for the CCIM designation.
Q. How long has the Real Estate Services Group been in place, and how has it evolved over the years?
Papierski: The group has been a part of the company since the early 1900s. Originally, Northern Trust had a dedicated farm management group, which was sold in the ’80s. But we still have farm managers on staff to manage more than 160 farms that we currently hold in trusts.
Today, four groups – located in Florida, Illinois, Arizona and California – make up the Real Estate Services Group. We have asset managers located in Miami, Naples, Dallas, Chicago, Phoenix, Newport Beach, Los Angeles and San Francisco, and currently manage about 2,100 properties valued at approximately $2.5 billion. Our team of 37 real estate professionals includes licensed architects, certified property managers, attorneys, Certified Commercial Investment Members (CCIMs), accredited farm managers and MBAs.
Q. What types of real estate assets do you typically manage, acquire or sell?
Papierski: We manage, acquire or sell residential properties that include family compounds, townhomes, condominiums, co-ops or single-family homes. Additionally, we have responsibility for many commercial properties, including large apartment buildings, and office, industrial, warehouse and retail properties. In addition to our farms, we also have responsibility for more than 300,000 acres of timber.
Q. What type of clients do you serve?
Papierski: We serve clients who have a single residence, as well as real estate entrepreneurs who have many investment properties and their own real estate businesses. As an example, there may be a client who has invested in real estate, is getting older, wants to back off and doesn’t have anyone to manage his or her properties. As a co-trustee, we can do all the legwork, keep the client apprised of performance, budgets and leasing, and include him or her in major decision making to the extent he or she wishes to be involved. This way, the client is free from the hassle of the day-to-day operations and has time to enjoy retirement or semi-retirement.
Q. How has a specific client benefited from working with the Real Estate Services Group?
Papierski: An entrepreneur with a significant real estate business recently asked for our advice with respect to structuring his business and minimizing his estate taxes in passing his legacy on to the next generation. We worked with our Family Business Group and advised him on how he could structure his estate plan to save, as it turns out, more than $100 million in estate taxes. We also put him in touch with an estate planning attorney to help devise the plan.
We worked with another individual whose family had acquired a significant number of real estate assets. He asked us to provide some direction and guidance for his son, who wanted to continue in the real estate business. We honored our client’s request by putting together an asset allocation model and investment policy guidelines for his son to develop a real estate portfolio. We set parameters for the type of real estate he could acquire, as well as value and debt parameters. And that continues today.
Q. How does the current real estate market affect your work?
Papierski: The real estate market affects a lot of what we do. On the residential side, marketing periods are now at 18 to 24 months or longer to sell a property, whereas a few years ago, we were looking at 45- to 60-day marketing periods. So the residential market is a much more difficult environment. Though we still sell more than 150 properties each year, it’s taking much longer to sell those assets, and we, of course, have to manage that extended process.
Marketing periods for commercial properties are also very difficult. But generally in this environment, we try to delay sale. Naturally, there are times when that can’t be done, so we have to go out on the market and again deal with this challenging environment.
Today, there seems to be more interest in apartment buildings and farmland than any other type of real estate. Farmland has held its value very well, while apartments have stabilized due to falling vacancies. But other asset types will continue to struggle until the unemployment rate drops, there’s more disposable income, and people feel better about the economy and start spending more money. Today, real estate opportunities are generally isolated deals. There is no one particular asset type that you can hang your hat on and say it’s a winner. You have to do your due diligence as an investor and look at each deal independently. We do that for our clients.