In a world focused on short-term results, CRE remains an attractive investment


As June drew to a close, many investors were probably relieved to put the stock market’s worst first half since 1970 in the rearview mirror. During the same half, however, commercial real estate investment generally continued to do well. include.

This is why many investors continue to view CRE as a relatively safe investment in any economic climate.

“You may not feel comfortable owning the shares of a company for decades,” said Dwight Dunton, founder and CEO of Bonaventure, an alternative asset manager specializing in designing, building , property management and investment management of multi-family properties. “But you could own a building for decades, and I think that’s very powerful for investors in this world of short-termism.”

bisnow recently sat down with Dunton to get his thoughts on why CRE continues to attract and reward investors.

Bisnow: What is the appeal of CRE for investors in times of economic uncertainty?

Dunton: It’s a physical asset that you can see and touch, and it doesn’t exist fleetingly like some other assets. I think it responds to a psychological need of people, who often need something concrete to be able to feel safe.

I think the other thing is that CRE provides consistent returns that are not as cyclical as the general economy. If you take the apartment sector, for example, employment may go down, people may have fewer hours, or their wages may be reduced, but they still need a place to live.

And I think that’s true for other types of properties on the CRE spectrum: even though companies can reduce the number of employees they might need, they still have very long-term office leases, usually about five to ten years.

Even during times of economic decline, the underlying fundamentals of real estate income streams are durable.

Bisnow: What advice do you have for people considering investing in CRE for the first time?

Dunton: They need to know what they are buying.

Some investments labeled “commercial real estate” have been sliced ​​up by the wizards of Wall Street. And while it might be labeled CRE, depending on the leverage and financial tools that have been shoved under the hood, it’s starting to look like something a lot more removed from the actual buildings that sit inside. inside the packaging.

Beyond that, they need to understand the leverage in place, what the interest rate risk is, what the underlying leases look like, etc.

Bisnow: What role can private REITs play in a CRE investment portfolio?

Dunton: I believe unlisted REITs can allow investors to access institutional-grade real estate without having to deal with the public market impact of owning real estate.

By this I mean that a listed REIT will not only have the fundamentals of the underlying real estate fund, but it will also follow the entire stock market. Many people already have a lot of exposure to the stock market through their portfolios or their retirement funds.

If you invest in commercial real estate through public REITs, you should be aware that the stock price will change. An unlisted REIT, on the other hand, is typically priced exclusively on real estate fundamentals, and so you don’t have the volatility associated with public markets and you don’t have to determine how much the stock price reflects the public stock market relative to the underlying real estate fundamentals.

Bisnow: How can an Umbrella Partnership Real Estate Investment Trust strategy benefit investors?

Dunton: An UPREIT is a transaction where someone who owns real property can make a tax-free exchange to effectively become a shareholder of the REIT on a tax-free exchange basis. It’s a powerful tool for someone who wants to sell but is prevented from doing so because they have a low tax base.

Bisnow: How does real estate play into portfolio diversification?

Dunton: If you have the right building in the right location, it’s an asset you could own for decades and have long-term compounding returns. This is generally not the case with other forms of asset ownership. It’s a tool to help people focus on their long-term goals in a more passive way.

Bisnow: What is Bonaventure’s investment strategy?

Dunton: As real estate has become a more mainstream asset class, it has become institutionalized and subjected to the same short-term scrutiny as public market assets such as stocks. This is where people focus on one quarter at a time and so sometimes decisions are made that are in the short term best interest but may not be in the long term best interest.

On the other hand, we have a long-term horizon in real estate investment and we focus on owning assets where we can have sustainable long-term and tax-efficient capitalization, and we work with investors and other real estate owners who share this long-term perspective. They don’t try to acquire an asset and flip it within three years.

The turnaround can be difficult because, although real estate is a stable asset class, it is not entirely immune to the economic cycle. If you are forced to sell an asset when the economic cycle is weak, you may suffer a loss, as opposed to if you have the ability to hold it for that period. But in general, real estate values ​​have always recovered and this is where we focus on investing.

We remain convinced that CRE is a solid investment, particularly in times of financial turbulence and unpredictability. The mix of options available within the industry itself – such as non-traded private REITs and unique UPREIT transactions – will continue to appeal to investors looking to diversify their investment portfolios.

This article was produced in collaboration between Studio B and Bonaventure. Bisnow press staff were not involved in the production of this content.

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