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Real Estate Trends Deep Dive with Global Research Analyst Shifra Ansonoff – Pt. 2

ILB 29 Shifra | Real Estate Trends

What are the real estate trends nowadays? We welcome Shifra Ansonoff back for another discussion, and this time focused on a deep dive into the real estate trends. Shifra is the Global Head of Research at Preqin, obtaining valuable data and insights on alternative assets via conversations with GPs and LPs, thus contributing to the industry’s most comprehensive private capital and hedge fund data sets. Given her macro-perspective, Shifra provides high-level data on the major asset classes in real estate, their historical trends, and projected growth. In addition, she covers the best inflation hedges and lays out how much money is in the market and where it’s flowing.

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Real Estate Trends Deep Dive with Global Research Analyst Shifra Ansonoff – Pt. 2

We got a fun episode for you. This is part two of a series we did with Shifra Ansonoff. In this episode, she goes into real estate. She is the Global Head of Research at Preqin, which is a huge data analytics organization in alternative investments. This was a fun interview. We’re going into the broad strokes of what’s happening in real estate, both domestically and internationally. For us, at this show, we like to focus on the real macro picture because it drives a lot where we see opportunities. For our audience, it’s to create a helpful framework for discovering where the best places to invest and where are the drivers that will support different places of investing. A rising tide lifts all boats. You want to be where the tide is rising.

That is something we love to do on this show. If you’re enjoying this show, we recommend subscribing to this on your preferred platform, whether that’s Spotify, iTunes or YouTube. We do recommend listening to this episode on YouTube if you can because we do have a few slides that she’s going to break down. Lastly, if you are enjoying this show and interested in learning more about potential opportunities and investing in alternatives, go to our website, which is AspenFunds.us. At the top, you’ll see the offerings button. You can click there to join our investor club and be notified as we have new opportunities for our investor base. With that, enjoy the episode.

Welcome to the show. I am your cohost Ben Fraser, joined by fellow cohost, Bob Fraser. We have part two of an exciting interview series with Shifra Ansonoff. We’re going to dive into real estate. Shifra is the Global Head of Research at Preqin. They are the alternative investment data juggernaut in this space and have over 400 analysts researching the data all across the globe and these investment classes. Our last conversation was focused on the future of alternatives, just global broad strokes look at alternatives and the growth there. In this episode, we’re going to dive into real estate. This is one that’s interesting to us, especially given the business that we’re in. A lot of our investors are big investors in real estate. I would love to dive right in. Shifra, welcome back.

Thank you.

This is super exciting to have Shifra back on. She is a data geek and Preqin is the big guy in the alternative space as far as data analytics. This is awesome to have her on and to be able to talk about what’s happening in the world of real estate from a global perspective.

There’s a lot going on now. We have inflation that’s running rampant. We have geopolitical things going on. Interest rates are rising and looming in the background. There’s a lot to talk about. A real quick thought here is if you want to see the data, Shifra provided a couple of slides for us to provide here and you can follow along. We recommend watching on YouTube if you would like to see those slides. Shifra, give us a little bit of backdrop for the whole universe of real estate here.

Let’s start with inflation. You’ve brought that up quite topical. One of the benefits of real estate is inflation protection. When we ask our investors the reasons that they pick real estate, apart from diversification, inflation protection is a key component. In Preqin, we’ve run incurable studies against all asset classes of alternatives, including real estate, to measure what is the impact of inflation. We see a statistical significance. It’s a strong one out of the real estate side. The way we’ve done this is we took CPI and PPI data across a variety of markets. We have our Preqin indexes that measure different cohorts of the market. We look at the returns. We see what the data of the coefficient is when we run these regressions. We see a positive relationship.

When we do this analysis, we look at also unexpected and expected inflation. Expected inflation is the Fisher Effect formula. The nominal rates incorporate the inflation component. What is the market predicting? Unexpected is when you’re seeing more inflation or less inflation than the formula would predict. We see generally a correlation, but it goes much deeper than that. Not every property or investment is going to have that protection.

You have to think about it from different angles. If you’re financing the debt and have a long-term loan and you’re locked into existing rates, rates go up. You’re fine until you need to refinance. If you’re financing a property that has a floating rate that will rise, your payments will go up. If you’re on the equity side and it’s a fixed rate, then you have raised your rates. You’re not benefiting from the rising rates, but if you have an escalator clause or short-term lease, then you could benefit as the payments would contractually increase with the rate of inflation.

We see that in office property as leases, in particular, tend to have some type of indexation. We see it in Europe as well. That could be a very attractive area, or particularly, you have strong tenants, fifteen-year leases. This is a very attractive area of the market. We see that continuing in an inflationary environment. Secondary assets experience sharper pricing. Older assets would be conceived in short leases but re-covenance. You may see yields move more proportionately much higher and an increased risk there. What we see that might happen is flows are coming out of those properties, then flowing into the core assets where we expect relative demands as investors are shifting per inflationary pressures.

Inflation is hitting the headlines here. We’re approaching 8%, according to the last print. In our previous episode, you talked about the alternative landscape of all alternatives. Is real estate the king in inflation protection? Where are you seeing the best place to hide from inflation or the best place to profit? Is it real estate?

Inflation is up there. We see protection in infrastructure as well. Even on the private equity side, we see it. It depends on the type of asset that you have underlying. If you have a business-to-business asset, IP tends to be sticky. You don’t necessarily see inflation take an impact. If it’s commodities-based, then you will see that. It depends on the underlying business impact. You have to look at the fundamentals there.

Certainly, real estate is going to be a clear winner. The other thing that I love about real estate in this inflationary environment that few people are thinking about is one of the best ways to create wealth in an inflationary environment is to borrow at fixed rates. That principal balance is being diminished at 8% per year or whatever it is. If you can have good debt terms and you can use that debt to purchase an asset that does index with inflation, you’ve got a double win. Real estate lends itself to lending.

To your point, Shifra, it’s not automatic. You have to have those two components working in tandem with having fixed rates, so you’re protected against the rising rates as inflation goes on. The expectation is that interest rates will increase as well. You have that protection if you’re fixed rates and you obviously want your top line, your revenue, your income to be able to track with inflation. Break down what you mean when you’re saying if you have escalators in your rental agreements and other things.

The idea is that if you’re receiving the income and the income is going to go up in concert with inflation, then you are protected essentially from the rise of inflation. Now, there’s always the question, can a tenant pay the higher rates? That’s where the risk could be.

Though there is inflation protection, real estate is somewhat hedged. Click To Tweet

You mentioned expected versus unexpected inflation. Can you explain more what that means?

Their formula is real rates equal nominal. It’s basically nominal yield and you take into account the inflation factor.

Is it real interest rates?

Yes.

Real interest rates are expected or unexpected?

That would be expected because that would be dictated by the market.

How do you measure the unexpected?

It’s anything outside of that formula, so you end up getting a higher level or a lower level.

One of the fascinating things we have going on that is an anomaly historically is we have negative real interest rates now, at least in the US.

It is strongly negative. It is rare, historically, that you have negative interest rates, especially at this level.

It is nominal minus inflation. Talk about how that impacts asset prices and maybe the flows into asset classes like real estate.

Certainly from the flows in terms of real estate negative rates. I still think that there is inflation protection. With real estate, it’s somewhat hedged. I would be more worried about the secondary assets or the poor performing assets with the repricing. Where we see an impact outside of real estate is leveraged buyouts, particularly. They’re benefiting strongly from the negative real rates now. If that shifts, then that’s going to compromise the asset price.

LBOs have gone in a real cycle. You’re saying LBOs are benefiting in an outsized way. Walk us through the dynamics there.

It’s the cost of cash. It’s cheap for them to borrow, and then go ahead and buy out these companies. We’re seeing a preponderance of flows in that direction. We worry that we have and when we run our empirical studies in an inflationary environment that could decelerate.

That would make sense because the cost of capital is going up.

ILB 29 Shifra | Real Estate Trends
Real Estate Trends: One of the benefits of real estate is inflation protection.

You have a great chart you provided here, “Capital raise by real estate strategy.” This aggregates the capital that’s being raised by year based on the strategy. You may want to break it down.

Walks us through this chart.

We talked about secondaries. Those are the lower performing assets. The core is very strong. The types of tenants that are very high quality in the best locations ever value-added our strategy’s repositioning of older properties. Let’s say an older office that maybe doesn’t have great ventilation. You want to upgrade and you want to configurable movable walls. You want to check the ESG box effectively and migrate your property over. In those cases, you might end up retiring your lease and buying it, then changing the property altogether.

Opportunistic is a similar idea. You reposition assets but much riskier. What we see here is certainly strong aggregate capital fundraising in 2021. What was very interesting in real estate is in 2020, you can see there was a slight dip if you look at the chart. In 2021, the first three quarters of the year were relatively tepid with about $120 billion in capital raised, $70 billion. It took off. When we did our projections of where real estate is going to be in five years, in the throes of a second-week year before Q4, we’ve been projecting a 7.4% by September. Real estate assets are approximately $1.3 trillion.

Now, we’re expecting it to hit $1.83 trillion. In Q4, when we rerun our estimates, I’m predicting it’s going to go up even more. It’s funny it was in the middle of the pandemic when we had projected a real estate AUM. In 2020, we were projecting that it would hit $1.24 trillion and we hit $1.3 in 2021. We surpassed the level that we’re expecting five years since.

It makes sense especially given the inflation issue as well as the liquidity. There are some of the measures we’ve seen as something about around $5 trillion in excess liquidity sitting on balance sheets due to the high savings rates. There’s a lot of cashing on the sidelines, which in inflation, light a match to cash. That cash is dying to be deployed. What’s a better place than real estate, especially in an inflationary environment. It does make a lot of sense. We’re seeing the COVID fear of 2020. Investors were paralyzed in 2020. All of a sudden, they realized that the sky wasn’t going to fall and it was time to back up the truck. I think we’re going to see possibly a record year in 2022 in real estate investment.

It might even be one of the higher asset classes when we rerun our projections. It is cyclical. It was up and down, but it’s going to be very interesting to see how that plays out in 2022.

It is very interesting looking back. No one expected this massive jump in a reduction in cap rates and asset prices going up. We talked about in the last episode alternatives in general, but the flight to quality and the search for yield. A lot of this bigger money and big institutions are having a hard time finding high-quality assets that produce positive yields. What are some of the drivers? When you had to reset the expectation for the compounded annual growth rate and hit your five-year projection at one year, what was the big driver of that?

The way we project our model, we use CPI unemployment statistics. That’s the way we incorporate it, but we look at backward history as a guide. We weigh recent history more heavily than earlier histories. What happens recently is going to majorly influence our projections for better or for worse.

What was driving a lot of the capital flows into real estate?

There are a lot of very interesting themes. We’ve received data centers on the industrial side. Data centers span the real estate and infrastructure divide. It’s been a hot market. KKR announced the purchase of CyrusOne, one of the biggest logistics data centers. With the shift from standard definition TV to ultra-high definition, Netflix and Zoom have increased the flow of traffic of data traveling across the world. We know working from home is there. They could deliver single digits to even 15% returns on these data centers. We’re seeing the divide between infrastructure and real estate. It straddles both sectors, but that’s an interesting area. The demand is hot super high-tech. You have data centers that do retina scans, weighing you in, weighing you out.

The shift in the supply chain also is another area, industrial, just-in-time to just-in-case. We’re seeing a lot of onshoring supply chain cold storage. I’m in the Asia Pacific now, as you know. Studies show the Asia Pacific is under-supplied in cloud storage. Data centers are also very energy-intensive, but some studies have shown that we’re running 550% more applications in data centers in 2018 than in 2010 but only using 6% more energy. From a green perspective, it’s environmentally friendly, so it’s starting to get a better rep there as well.

I love this breakdown. Maybe each of the core real estate food groups, and talk about the different asset classes and how they’re performing. You were talking about industrial. That’s an asset class that we’re very bullish on. For a lot of the same reasons that you said, but if you could break down some of the things you said there, the onshoring, just-in-case versus just-in-time, and some of these taglines that are shifting. The spin has already been pretty hot because of eCommerce and other things and in last-mile delivery. It seems like there’s another wave here.

We’re seeing vacancy rates in industrial hitting all-time lows and there are no places to be had. It’s been underdeveloped because the market is lagging. There’s not enough new product coming on the market.

On industrials, the twenty large steals were in the industrial sector. That’s normal. The demand for warehouse space is high. Blackstone entered the largest private real estate deal ever. The $24 billion capitalizations of the European logistics business is a mile away. It’s the boom in eCommerce core in demand. I think that we were talking about Kohl’s when we had our prior conversation. I love the whole model where you pre-order. You go to the store and get what you need and then you come and everything is ready. It’s an environment of making it convenient. Make sure the supplies are there, so they’re accessible to consumers.

What happens recently is gonna majorly influence our projections for better or for worse. Click To Tweet

A lot of what we’re seeing is because of a lot of the supply chain disruption. Car manufacturing was a great example of that. Car manufacturers were trying to complete production because the demand was so strong as we’re coming out of COVID. Everyone has liquidity, but they don’t have the chips and they can’t put chips in the car.

What does having a single chip in inventory worth to you when your car can’t be produced because of a stupid $2 chip or how much is that chip. This is what she says moving from just-in-time to just-in-case. Just-in-time was the new thing back in the ‘80s. Everybody said, “Why have inventory? Let’s get it shipped to arrive right at the moment when it’s needed at the assembly line.” That’s great until it’s not great, until you have supply chain issues. Now, it’s just-in-case, which costs you an enormous amount of money to not have inventory when you need it. A huge shift is happening there to solve that issue.

In South Korea, they have one large eCommerce market in the Asia Pacific. They have a service dawn delivery that guarantees grocery deliveries at 7:00 AM the next day. It’s unbelievable. I’m learning through my time here.

You’re seeing this shift not only in the US but globally towards just-in-case and the last mile.

Even local sourcing. We’re seeing the chip manufacturers building plants. Intel is building two plants in Arizona. There are many others. People are saying they’d rather have stuff that’s sourced closer to home. Manufacturing has also increased.

We’ve seen this globalization trend for many decades. This just-in-time inventory supply chain where you can get something from China within a few weeks and you have it all planned out in your logistics, but it’s almost a deglobalization in certain areas and certain pieces of the supply chain to protect the challenges that we may have to get disrupted again. It’s something that’s very interesting. Talk a little bit about office. That’s another asset class.

The office was one of the hardest-hit sectors during COVID. Much diminished deal value is there, but there’s an increasing demand for value-add strategy. These are assets that can be readily deployed, which is what we saw in 2021. It’s starting to become a bit crowded, so $53 billion in fundraising, 30% of real estate fundraising.

For a value-add office.

You can buy an office that’s quite old, has bad ventilation, old lifts, not energy efficient. If it comes to the end of the lease, then you can buy it as your tenant lease expire. When it’s empty, configure it accordingly. You can become energy efficient and also check the ESG box. You can maybe get 70 square feet. The World Green Building Council said that when they meet in the Paris Accord, limiting global warming from 5 to 2 degrees. If you have too old real estate, it must be emitting zero carbon by 2050. We also saw funds in 2021 to target these strategies.

For example, in London, Edmond de Rothschild is working on converting an office space in London into a hotel. The other thing that’s interesting is we can talk about the shift to a three-day workweek. Tenants of office buildings are in the driver’s seat when it comes to office space. I was reading about pharma firms in New Jersey are shrinking footprints and landlords are hard-pressed to fill the space.

On the flip side, at Preqin, we expanded in terms of the number of employees during the pandemic. Even with the hybrid office set up, we required a larger space in London. If you’re a firm, what we would say is you’re trying to manage your real estate needs. You need to think about your peak demands rather than average demands. Even though staff may come in, if you have visitors coming in or what if your whole team is in the same day and you have clients coming in, do you have enough space for them?

That’s an interesting thought because we’re seeing this shift in the office and this hybrid mode of working from home and working in the office. It seems like a lot of the bigger tech companies and employers are moving towards that model. It’s not going to be rebound to the same degree, but you’re saying that these companies have to plan for peak usage of the office. It’s not just the average because there may be times when higher than the average comes into the office and they need to be ready for that. You’re implying that the impact may not be as great.

It might not be. We’re starting to see it. Initially, some firms were saying, “You can work remotely 100%.” Now they’re saying come back to the office. They’re unwinding some of that because of the recognition that you need to corroborate together. On the Asia Pacific side, working from home is not a big thing. Barring COVID, you have cultural preferences, smaller living quarters and shorter commutes, strong public transport networks. The MRT here is amazing. It’s so easy to get around. It does vary.

The other thing, I don’t know if you’ve heard this. This is fascinating in offices. Have you heard of the Pret Index? Bloomberg has an index based on Pret a Manger, which is if you’d gone to the store, they sell sandwiches and croissants. It’s a big thing in London. They wanted to measure during COVID what the footprint is. How many sandwiches are they selling at the stores in the cities versus the suburbs? That was the way that they measured, are people coming to the office or not?

Canary Wharf and parts of Manhattan have had Prets, and very low foot traffic since the pandemic. Come February, the banks were asking people to come back to the office. London has been ahead of us in the recovery. We’re seeing the volumes go up. People were coming back to offices and cities. There’s still a big sunbelt relief that has happened, but it is fascinating following these trends.

ILB 29 Shifra | Real Estate Trends
Real Estate Trends: Office was one of the hardest hit sectors during COVID. There’s so much diminished deal valiance there.

You’re saying that it’s almost a sandwich index. They’re measuring how many sandwiches these shops are selling.

Suburban versus office sandwiches. That’s great. There’s a science that works for you.

Your point is that we’re starting to see a rebound.

Has it recovered?

Yes.

On our side of things, coming to the lower middle market investment, there is still a pretty big hesitation or trepidation around the office now because of the unknowns. Are you seeing some of the bigger institutional players jumping into the office now because they see opportunities? Is it the same where everyone is waiting to see how it all lands at the end of the day?

I think there are some opportunities now. There are some flows going to offices, for sure. It’s not as big as I’m seeing on the industrial side, as we talked about. We see this as a strong opportunity. The ESG front is going to be a big driver. There was a stat something like 1 in 10 offices is going to need some type of ESG certification and improvement. The actual investment and development that’s going to be required in Europe and in the US to upgrade the offices are going to be quite strong, and that’s going to be a driver. This is something that we think as this takes off.

Could you explain what ESG means for those that may not be familiar with the term?

Carbon Footprint, Energy Efficient. Having the older offices with poor ventilation, you need to upgrade and even the way that people are working, having more open space.

Are you seeing ESG demand driven by renters?

By regulators and also, if you want to have an ESG like a LEED. LEED is like a seal of approval for your property. A lot of investors or allocators are looking at LEED ESG. They want to demonstrate that they are and the fund managers as well.

I think in the US, we’re probably behind in that. Europe is always super green and very much probably way ahead of the game there, but that’s coming. Do you think that’s coming to North America in a significant way?

I think it is coming. I agree, it is behind but I believe that’s going to be the next wave. I know Biden is pushing for it.

It’s interesting in the office space, we’re seeing a lot of opportunities and repositioning. Maybe you call that opportunistic, but we’re looking at office conversions to storage, which has a very increased demand now and invested in multifamily. We’re seeing repositioning of assets that maybe doesn’t make sense to bring them up to maybe standards for ESG.

Especially in the face of questionable demand. Let’s reposition it in something else.

Back then, you went where the job was and that's where you ended up living. Now, it seems to be becoming a theme of, “Where do I want to live? And then I’ll have the job that will accommodate that.” Click To Tweet

Are you seeing that at a larger scale with bigger players or not as much?

Yes, much so. Another sector I would say that is heating up is hotels. They’ve experienced aggregate deal value and are on track to hit. Basically, it was around $20 billion in 2021. That was up from $9.4 billion in 2020 and outperformed the long-term average of $15 billion per year from 2006 to 2020.

These are capital-raising funds targeting hotel acquisition. That’s interesting.

I was in Vegas for a holiday break in the Paris Cruise Hotel and there are lines of tourists. People are traveling. Planes are filling up. One of the biggest deals that we tracked in 2021 was the $5.7 billion acquisition of Cosmopolitan Las Vegas Hotel. That was by MGM Resort partners. It’s interesting how that’s picking up.

Office, I could argue that you’re seeing something systemic. It may not recover, although you’re bringing some great points there. For hotels, are people going to not travel? To me, hotels are an obvious place to buy from an opportunistic perspective now because people are going to travel. Traveling isn’t done. It’s not over. There’s no systemic decline in travel for some reason. It was more of a shock because of COVID.

Are you seeing the demand going into the hospitality or hotels buying distressed properties? Is this new development? Is it a mix?

It seems to be a mix, old and new, all around. We’re seeing a boom in travel. We’re going to see a lot. People will go overboard because they are home locked in for a few years when they normally don’t travel. I know for myself, we’re planning so many family trips.

Are you seeing things similar to what you see in other asset classes? This flight to quality, core assets being a big driver of that. Within the hospitality hotels, is it more luxury properties, more high-end three-star and above? Is it more of a budget side of things or is that something you track?

It seems to be on the luxury side. Is that what you see too?

I honestly don’t have any reference point, but that would only be my gut. Personally, it’s like, “We’ve been cooped up for a long time. Let’s go and live it up a little bit on a discount.” I don’t know if that’s a long-term sustained trend, but I was curious there.

If you look at slide twelve on the niche real estate assets. With the growing and aging population, you see more individuals in pursuit of higher education and shift investment activities on the niche side. They are one growing trend. The world’s population is expected to rise from around $7.8 billion now to $9.7 billion in 2050. If you look at the top part of the population, 70 and up was expected to grow from around 458 million people in 2020 to 1.1 billion in 2050.

Talking about the niche, we’re talking about senior housing, student housing, parking lots. In terms of the rising population, we see long-term trends there, particularly. If you look at the chart, you can see the breakdown. Senior housing is around a third of the level of deal value activity. The niche deal of numbers overall was down in 2021 from the 2019 peak. Aggregate deal values could go up to the 2016 level. If you look at that, that was shooting up at $19 million. The need for student housing is increasing in the private rent sector. Student housing is 30% in the niche sector.

This is slide twelve. You have here the global population growth. Population growth where those trends occur can drive a lot of demand for different sectors within real estate. The chart on the right is breaking down these niche real estate asset classes. You have senior housing, student housing, entertainment, healthcare, car parks, education, self-storage, all considered niche. It’s fascinating.

Going back to 2010, you can almost barely see it. You have to have a microscope because it’s such a small amount in comparison to 2016. That was a gangbusters year. It seems to be sustained at that level. Talk a little bit about breaking down what’s driving some of the demand in some of these more niche areas of real estate.

As we see more students go to college and the enrollments are going up, colleges are running out of housing. A perfect example is one of my sons is at RIT. They can’t guarantee housing for sophomore year and up for students. It’s unbelievable. I didn’t know that.

ILB 29 Shifra | Real Estate Trends
Real Estate Trends: There is not enough supply of homes to buy, so it’s really the wealthier investors really taking on these properties, and it’s really pricing people out of the market.

What are they saying? “Stay in your car for a while until you fall asleep in your car.” What the heck are they thinking?

They have a lottery and it’s the luck of the draw.

What if you lose the lottery?

We went up and found that they have arrangements with properties they are buying. They have an amazing apartment with a kitchen and 24-hour security, a swimming pool and a gym. It’s far superior to anything I’ve ever slept in my college days.

You don’t want them to have too much fun though.

It’s certainly a big thing. In Europe, they announced a joint venture between Roundhill Capital and the Canada Pension Plan Investment Board to invest more than €1 billion of European PVSA assets. That’s purpose-built student accommodations. Those are high-quality, fully-serviced, well-located accommodations. We see that is a potential area not only here but in other parts of the world.

It’s interesting that student housing is such a big piece of this. I didn’t think it was that large. Going back during COVID when a lot of the universities had to go virtual, to me, it would have seemed like it would have softened the demand or investment into that area. In 2021, it seems like it rebounded pretty quickly.

It’s very interesting that you say that. A lot of the kids, as soon as they could go to college and get away and rent a house, they’re all ready to go. “As soon as the college opens up I’m going away.” I think that’s that surge.

Historically, we’ve typically seen it during recessions. Colleges tend to boom because people say, “I can’t get a job. Let me go back to school.” Is that trend breaking? Are we seeing stronger sustained growth in people wanting to get educated or is it population-driven?

I’m hearing so many stories of people going back to school and dialing back. With COVID, we saw a lot of women who had dropped out of the workforce to take care of their children. It was interesting. I was listening to a show and rather than calling it The Great Resignation, it’s The Great Reshuffling. People are re-evaluating their life, what they want to do, where they want to live. Do they want to live in a warmer climate or not?

There’s this move to the sunbelt. There was a report about Millennials the way their philosophy of not holding on, late to get married, late to have children, and even wanting to rent. They don’t want to be tied down to owning a property. It is driving rental values up on the residential side. We’re seeing a lot of interesting winds of change in the last few years.

Going back to the point you made about the greying of the world, let’s not get personal here. I’m not sure if that’s a great investment necessarily. We see some systemic shift there too, where a lot of people are opting for home health care. It happened during COVID. The people decided not to institutionalize and to avoid senior care facilities. What if we see that shift? There’s no question the demographics are there, that there is a tsunami coming. Our audience may be aware of what’s happening in America, but it’s far more severe in Europe and Asia. You see very much of a greying society.

I’m sure you’re familiar with the data out of China. The working-age population is decreasing in China because of the one-child policy. The central planners never thought about the population as a negative instead of, “That’s my GDP growth. They’re my future.” A big question is how’s the world going to take care of this? Certainly, where are the opportunities and/or the risks? Any thoughts on that?

We see strong risks in the senior housing in Asia for sure, in terms of building that out. I see that continuing strongly in Asia. In Japan markets here, in terms of there’s a strong emphasis on health and life sciences, that’s very strong. That’s building out everywhere. Health tech has been huge. The life sciences, we didn’t talk about that, but that’s also a growing area. That’s very close for growth. You need the manufacturing distribution spaces. The region’s population in Asia is getting wealthier and older. They are spending more on healthcare goods and services. Health expenditure accounts for 60% of GDP versus 17% in the US, according to CBR when you look at the Asia Pacific.

Going back to where you alluded to on the migration patterns, it’s like in the US here and this Great Reshuffling. It does seem to be driving a lot of values in a sunbelt where it seems like a lot of population. Is migrating a population growth there? What other larger patterns domestically here are you seeing from a broad strokes standpoint?

Another sector heating up is hotels. Click To Tweet

Multifamily, those rent housing, has been an important component of real estate. There’s a strong rental. The preponderance is there and the increased rates. I think Dallas is showing huge increases in rental properties. It’s almost becoming unaffordable, to be honest. On the rental side, huge news coming out of New Jersey. In terms of homes, there’s not enough supply of homes to buy. It’s the wealthier investors taking on these properties if you will. It’s pricing people out of the market.

We’ll be talking a lot about affordability in other episodes and as the asset prices are increasing for single-family homes in particular. Interest rates, as they increase, drive affordability down. It becomes less affordable to purchase. It’s moving people to rent instead of purchase. We are seeing that also on the other side of it.

It’s the same in rents. We’re seeing rents are increasing as rapidly. Housing unaffordability is rising. It’s interesting, your global perspective, Shifra. I’ve traveled quite a bit in Europe and Asia. The rents are higher. The square footage is lower and rents are higher. What do you see in terms of affordability? Do you guys track affordability? How does it compare to US affordability versus Europe and Asia affordability?

Asia, I can talk about that. Food’s not that expensive but the rents are through the roof. Singapore, I’ve seen a 40% increase in rents. It’s interesting. What we’re seeing is a flow of people leaving Hong Kong because of the situation there. There is a huge migration pattern coming out there. This is only Shifra speaking. With what’s going on in Europe, there’s potential. There could be flows of people and Eastern European markets are welcoming with open arms the Ukrainian population. I think that there are so many geopolitical factors that go into it as well.

Talk about affordability. An apartment in Singapore versus an apartment in New York.

I’m paying about $8,000 Singapore, so maybe that’s $7,000 US per month. Maybe that’s $7,500 for a 1,000 square foot apartment.

Comparable in New York, what would it be?

It’s anecdotal, probably.

It might be. For that science, it could be around the same.

Do you think it’s the same?

It could be similar. I haven’t checked in a while.

I’d love to hear this too. This is a little more anecdotal but we have seen, at least early on in the pandemic, a lot of migration out of the Northeast. As someone who lives in the Northeast, we’ve been hearing that it’s coming back and these people are going back to the office. They have to live in proximity to it. What do you see in the Northeast in general from population and demand in those things?

What I’m seeing is a lot of people coming from out of the cities moving to the suburbs. We have a lot of New York drivers driving around but basically, people are looking for bigger spaces, working from home, trying to get a little bit more land, and coming to attractive school systems. What I see happening is in contrast to where I was when I started my career, you went where the job was, and that’s where you ended up living. You built your home and real estate decision around that. It seems to be becoming a theme of, “Where do I want to live?” I then find and have the job that will accommodate that.

It’s a major shift in what’s happening.

Shifra, any other big picture themes here? I know we’ve been going along and got a lot of data. This is so fun but any other points that you’d like to leave with our audience here?

It’s so helpful on the real estate side. I’m excited to see what happens with the pre-positioning of the assets, with the new look and feel of an office. What does it mean to have an office space and the retailization, what that’s going to mean for consumers? I think we have a very bright and full 2022.

Shifra, thank you so much. This is awesome. This was part two of this macro big picture look at alternatives in real estate. We appreciate your thoughts here and Preqin and providing this data for our audience. If you enjoyed some of these thoughts and want to get an in-depth report, Shifra has graciously provided a complimentary download from Preqin that you can get on the slide deck. You can download it on our website TheBillionairePodcast.com and get that. Shifra, thank you again for coming on and sharing your wisdom.

 

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About Shifra Ansonoff 

ILB 29 Shifra | Real Estate TrendsShifra is the Global Head of Research at Preqin, carrying the remit of obtaining valuable data and insights on alternative assets via conversations with GPs and LPs, thus contributing to the industry’s most comprehensive private capital and hedge fund data sets. A 20+ year veteran of fintech, Shifra has acquired expertise in risk management, product and relationship management, and data governance. Previously, Shifra led the global operations team for the analytics solutions division at Qontigo (previously Axioma).

Prior to, Shifra was with BlackRock Solutions and Bloomberg. Shifra has been an active mentor at Rutgers Business School, for which she received a Mentorship Excellence Award in 2018 and was shortlisted by Waters Technology’s Women in Technology and Data Awards for a Risk Professional of the Year award. She holds a bachelor’s in Economics from Sarah Lawrence, and an MBA in Finance from Rutgers University.

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