Real estate may have an illiquid nature, as well as high valuations, but it has served as a core performer for investors — and, if they know what to do, it can result in excellent returns.
Just ask the three asset managers who gave out a lot of valuable information at the CAIP East event. Under the careful eye of moderator Joe Cerullo from Segal Rogerscarsey Canada, they showed why real estate — both domestically and internationally — could be a solid investment for any institutional pension fund, large and small alike.
But, as they emphasized, real estate is an area that can be very beneficial if investors have the right knowledge.
Start with David Pappin, the president of IAM Real Estate Group in Toronto. As the only Canadian on the platform, his company focuses on the Canadian real estate market. The other two panelists, Tracey Luke from Invesco and Erika Gucfa from Aberdeen Standard Investments, showed how the right kind of investment of international real estate can really pay off for pension funds.
So what should an investor do?
As Mr. Pappin said, real estate is a long-term investment. “It needs to be a defined strategy with a manager or a team that has extensive experience and can deliver.”
Ms. Luke laid out the basic guidelines for all real estate investments — anywhere. Her company is “as focused as ever on just ensuring that the assets that we’re investing in are enduring in the location, have the ability to deliver a stable increase stream and an income stream that can grow over time.”
She argued that even though some investors may think that they are too late in the cycle, especially after the 2008 financial crisis, to put their money into real estate. But this is not the case.
And Mr. Gucfa agreed. Casting an eye around the world, she showed where some of the opportunities are. “There’s a new move towards urbanization, where folks are now renting as opposed to owning properties . . . “ This is a trend that is just emerging, leading to good opportunities.
And the same is happening in Canada. Real estate investors are far more interested in this country because of developments elsewhere in the world, including Brexit and the instability constantly brewing in the United States.
Some interesting shifts are happening. “You’re seeing a rise in new strategies and things that . . . you wouldn’t expect to be of interest for people,” said Ms. Gucfa, citing Irish residential debt as a new and lucrative investment area.
From a U.S. perspective, real estate is not nearly as lucrative in some areas. They changes to real estate tax increases have hammered many municipalities in their budgets, forcing them to raise capital from real estate investments, she pointed out.
Ms. Luke’s focus? “ . . . we tend to focus not just on cities and markets, but on the sub-markets and even micro markets.” It pays off. “And some of those locations, where you have high growth, high industry, high job creating industries, that’s really where we’re focused.”
But the headwinds must be avoided. “I would not want to own secondary office locations, commodities products are not transit-oriented and outside of job-creating growth areas.”
Mr. Pappin had the same view. “Real estate is really driven by a number of key things and one of them is employment . . . if you look at Montreal, Vancouver and Toronto, where immigration and population growth are strong . . . real estate investments work well.
And the decline of brick and mortar stores has not hurt: instead, it has created disruption for real estate investing, often moving monies to large warehouses, especially in investment zones. Same with student housing, senior housing, hotels and storage facilities — even mobile homes — as Mr. Cerullo pointed out.
It has produced results for investors.
The opportunities are limitless: designing or building multi-rise buildings with plug-ins for electric vehicle, grocery stores that need investments for bringing technology as they move into the future.
“One of the major grocery stores is going to be servicing 65,000 orders a week to deliver the groceries with automated robots,” said Mr. Pappin. “And so, if you’re looking at 30 years . . . you need to have that vision and be plugged into what the technological advances area.”
Same with garages, such as those at the marina in San Francisco, where all kinds of garages are under renovation to convert them into apartments. “The kids don’t want them in today, they want to use Uber and Lyft and so they’re converting that to higher producing rental income by making units out of them,” said Ms. Luke.
Final result? All three panelists agreed: real estate is a great investment, but it takes a lot of knowledge to know where to put a fund’s money. And that is where specialized asset managers, like Mr. Pappin, Ms. Luke and Ms. Gucfa, all pointed out.