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In Hunt for Value, Investors Turn to Healthcare, Data Centers, Student Housing

Evolving-with-the-Times

While there are values and attractive properties to be found all across the commercial real estate spectrum, investors will be turning much of their attention to non-traditional sectors like healthcare, data centers and housing for students and seniors in the coming months and years.

That was the assessment of a group of investment experts at DLA Piper's 2017 Global Real Estate Summit on September 26, 2017, in Chicago. The panel, chaired by Jeffrey A. Barclay, managing director of Goldman Sachs, was titled "Evolving with the Times: Non-Traditional Realms for Real Estate"; it began with a discussion of the overall market.

Market Strength Depends on Perspective

"From a boring and dull business that is ‘Steady Eddie,' we have no complaints," said Lee S. Neibart, chairman of the Global Real Estate Group at Ares Management, which focuses on fundraising and opportunistic investing in the US. "There are still land-sellers that want to move their properties at reasonable prices. If you have discipline on the risks you're willing to take, you should be able to be successful."

The state of the market depends largely on where you sit, said Deborah L. Harmon, co-founder and CEO of Artemis Real Estate Partners, a real estate investment firm that manages US$2 billion in institutional capital. "If you're a new fund trying to raise capital," she said, "it's actually pretty terrible." There is also "significant institutional pressure on fees" and a belief that too many people are making too much money on deals, she said.

From the private equity side, Randall K. Rowe, chairman of Green Courte Partners, said: "It's hard to say the market has been stable. We've been net sellers for 36 months, but that's because the pricing has been extremely attractive."

What Sectors Are Attractive

The panel was somewhat split on more traditional properties − e.g., downtown offices and retail – but the panelists agreed that healthcare, independent living facilities, senior and student housing, data centers and even self-storage would be important parts of the group's portfolios. That tracks with DLA Piper's 2017 State of the Market Survey report, in which respondents favored healthcare (56 percent), multifamily buildings and data centers (both 31 percent) and student housing (22 percent).

John Z. Kukral, president and CEO of Northwood Investors, said his company is looking at traditional real estate properties in areas conducive to today's busy lifestyle, adding that "people want a good place to live with good schools for their kids, and good jobs."

The Need for Talent

The panel then discussed their efforts to attract and retain talent. Tenants have adapted to meet the demands of younger workers – and real estate companies should too, panelists said.

"Where we have fallen down somewhat as an industry is that we have pigeonholed young talent to do certain tasks," Neibart said. "We have to understand that it's OK for young people to go meet with a property owner, even if they don't have a project."

"Right, people actually having real-life experiences during the day," Barclay said. "Considering the relatively stable real estate market, it should be straightforward to attract talent in the industry."