Investment opportunities arise despite economic disruption
This article was written by Joseph Ferguson, Industry Principal for MRI Investment Solutions.
At the dawn of the new decade, there was still a bright outlook towards 2020 investing potential. Although new twists and turns were expected, none were as twisted and sharp as the COVID-19 pandemic.
2020 entered with:
- The disruption of retail by Gen Z’s experience-focused spending habits and the growing influence of mobile and social media on retail buying channels.
- The reinvention of senior housing caused by the changes in lifestyle of the aging baby boomer population.
- Continued e-commerce growth and pent-up demand for supply-constrained state-of-the art industrial warehouses.
- A changing geographic of where professionals wish to live, work, and more.
There were plenty of investing twists and turns to navigate.
However, real estate still remained popular as investors continued to seek returns in a zero-rate environment. They insulated exposure to the risky asset by increasing capital flows into alternative asset classes with continued growth, such as self-storage, student housing, senior housing, renewable energy, infrastructure, and infra-tech assets. An uptick in alternative investment strategies sought to weather the fact that we are in a late cycle of slowing growth for real estate. Medical real estate assets remained favorable since it is necessity-based and people need medical care in both good and bad times. Co-living and co-working space continued to have a positive outlook as the inventory became more and more condensed. The multifamily market was also originally expected to see another superior year.
Then, in the midst of navigating these winding but still somewhat prescriptive roads, came a sharp twist and turn: The COVID-19 Pandemic.
How a pandemic changed the investment landscape
With much confusion in the air and a nosedive in transaction volume, the investing market was suddenly forced to pause and rethink much of its strategy. COVID-19 changed much of the original 2020 investing outlook, particularly around co-living and co-working assumptions, and multifamily investments as a result of rising unemployment and lost wages.
Areas for investment opportunity despite the pandemic’s disruption
However, as sectors of the economy begin to gradually reopen and institutional investors have thought long and hard on the next steps, the writing on the wall is actually starting to indicate some cause for optimism.
- Honing in on where young professionals wish to live and work may continue to produce healthy investment strategies.
- Real estate looks to be sustainable for those investors seeking resilience even through the COVID-19 pandemic.
- Although the industrial market was slowed by COVID-19 in the first half of 2020, we’re hearing that it may kick back up as demand for state-of-the art industrial warehouses returns.
- Continued growth and increased capital flows into alternative asset classes such as self-storage, student, and senior housing look promising as investors search for yield.
- Although multifamily slowed from the COVID-19 crisis due to wages, the market looks promising as investors continue to seek returns in a zero-rate environment.
- The COVID-19 pandemic seems to have bolstered the favorability of medical real estate.
The importance of understanding economic dislocations
Investment funds are looking to capitalize on the dislocation of these assets and may face heavy competition in a post-COVID-19 world. New and soon-to-be-launched funds seeking investment opportunities could acquire assets or the debt secured on them at a discount to their “true” value. Thus, new funds are poised to face a lot of competition from existing vehicles because there is still “plenty of dry powder at hand.” There is a vast and bewildering array of funds looking to take advantage of current economic dislocations.
When the abnormal array of asset dislocations emerges, will your fund have the right technology in place to manage a potential onslaught of capital flows and acquisitions? Learn how MRI Investment Management software can equip your firm to handle the twists and turns ahead.
Clarion Partners completes bookings faster with MRI Investment Accounting
Clarion Partners is a leading New York-based real estate investment management firm with offices around the world. Its nearly 1,500 properties and $81.6 billion in AUM span a variety of real estate risk/return strategies supporting multiple open- and