Real Estate Alternatives
US Insurer | 2021
Engagement at a glance
The client, a US Insurer, was intending to allocate up to USD 50 million to ‘alternative’ real estate sectors in the US through one or more commingled funds. These sectors included residential assets, such as single-family rentals and senior living accommodation; specialist facilities, such as life sciences labs, medical offices, cold storage units and urban logistics properties; and various strategies that straddled these sectors. The investor wanted to achieve double-digit net returns in either an open- or closed-end fund format.
The investor already had an established real estate investing programme, including Core, Core+, Value Add and Opportunistic strategies (both domestic and international). Although the client wanted to complement these strategies by using managers experienced in alternative real estate sectors—with large platforms and established capabilities—it also wanted managers that could offer a boutique-style approach.
Understanding the landscape of opportunities: prior to the formal search, the bfinance team requested information from a diverse group of managers to help the investor understand the range of opportunities within alternative real estate. This process enabled the investor to narrow the search to a smaller set of subsectors.
Providing education on preferred alternatives: the team ran three searches in parallel—Life Sciences, Residential and Multi-Alternatives—to build understanding of their relative strengths and weaknesses prior to the selection of preferred strategies and managers.
Analysing the robustness of investment strategy: given the focus on newer alternative sectors, bfinance specifically analysed the robustness of the client’s preferred strategies—assessing the market outlook for each of the relevant sectors as well as the managers’ sourcing capabilities, operator relationships and track records.
Reviewing manager capabilities: In addition to reviewing managers’ capabilities in alternative strategies, bfinance also provided a broader review of their capabilities in other strategies—particularly in the Core Diversified space.
Gaining insight into unfamiliar managers: The investor already had some strong relationships with managers covering alternative real estate sectors, but none of the managers included in stage one of the search process were familiar to the investor. With a full palette of new managers to consider, the client decided to separate the Residential and Life Sciences/Multi-alternatives segments and concentrate on each in turn for discrete mandates.
Our specialist says
The Covid pandemic has accelerated structural trends that were already reshaping the real estate landscape. This shift is leading to increased demand for a range of real estate alternatives. Although many of these sectors have strong long-term prospects, they are at a relatively immature stage of their evolution and prone to bouts of oversupply and aggressive pricing; we also expect to see increased dispersion in manager capabilities. In such a context, it is critically important to fully understand the dynamics of the individual alternative sectors, as well as the capabilities of individual managers.