"Dislocation in the market creates opportunities, and they’re not always the most obvious."
2022 is shaping up to be another eventful year for real estate. From post-COVID market volatility to falling capitalization rates, current conditions are keeping property investors on their toes.
Jonathan Dane, founder and CIO of Defiant Capital Group, sat down with four investment experts to discuss the good, the bad and the ugly of real estate investing in times like these.
The panel featured:
- Corey Boller, Manager, Rehmann Capital Management Group
- Victoria Greene, founding partner and CIO at G Squared Private Wealth
- Balaj Singh, research analyst at West Capital Management
- David Vincent, Investment Products Specialist at Cadre
Dane isn’t one to beat around the bush. When setting the scene for the roundtable discussion, he doesn’t make bones about the fact that ‘the environment is just crazy right now.’ Crazy as it may be, though, investors still need to make money. The question is, how?
David Vincent, Investment Products Specialist at Cadre, has an optimistic outlook, calling for a nuanced take on current developments.
‘It’s a question of what market you’re in and what asset classes you’re looking at. Dislocation in the market creates opportunities, and they’re not always the most obvious,’ he says. Office space, for example, is still in demand, despite the doomsayers.
‘How we’re imagining office use today is going to be different going forward, but that doesn’t mean it will become obsolete,’ Vincent argues. ‘There’s demand for prestige. Premium offerings with top-notch amenities in great locations are highly desirable.’
Even so, Cadre is not aggressively looking to acquire offices in major downtown markets. The firm focuses on secondary cities with high growth potential, instead.
‘The reason why we like these markets is simple: when you have population growth that is above the rest of the country, you’re going to have job growth. Companies are going to move to where the people are. People are going to move to where the jobs are. Once you get a certain critical mass, it becomes a positive feedback loop,’ Vincent says.
He has a point. Tech giant Oracle is setting up shop in Nashville, investing $1.2bn to build their new campus with plans to bring 8,500 jobs with an average salary of $110,000. Tesla is moving its headquarters from Silicon Valley to Austin and it’s not the only one. Hewlett Packard is also relocating to Texas, in this case Houston.
It seems there’s no shortage in real estate opportunities, yet some investors are still hesitant to allocate to the asset class. Victoria Greene, Founding Partner and CIO at G Squared Private Wealth, isn’t one of them.
‘We see real assets as a way of generating income. We’ve been peeling off some of the fixed assets and looking towards real estate,’ she says.
Greene isn’t just interested in any kind of real estate, though. She makes the case for being selective and carefully considering the options on the table: ‘We want to be picky about what we’re getting. For example, we’ve been avoiding student and senior housing because we think those are two places that might be a little bubbly and frothy.’
And the relative illiquidity of real assets? Not all investors are aware that they’re usually not able to sell their assets whenever they want.
That’s why Corey Boller, Manager at Rehmann Capital Management Group, calls for clear communication from the get-go. ‘It’s extremely important to make sure clients are cognizant of illiquidity. We see a lot of them wanting access to real estate, but they don’t exactly know how to go about it.’ Educating the client, he believes, is key in that regard.
‘It’s important to complete the picture for the client,’ Singh agrees. ‘At the end of the day, there are two risks we always have to consider when investing in real estate: The time horizon, which is a lot longer in this asset class, and illiquidity. That’s just something you have to keep in mind.’