Real Assets Adviser

February 1, 2016: Vol. 3, Number 2

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From the Current Issue

Demographics, Technology, Urbanization: The DTU method of investing in real estate

As real estate values rise to new heights in major cities across the world, investors need “cycle insurance” to protect the value of their portfolios in the event of a cyclical downturn. One of the ways to protect a portfolio from a downturn is to seek out properties and markets that participate in longer term secular shifts in economies or societies. Such investments should exhibit a degree of immunity from the cyclical ups and downs of the credit cycle, the business cycle and the real estate supply-demand cycle. In a sharp downturn, like the 2008–2009 global financial crisis, all property values decline. But, in the ensuing recovery, assets that serve secular demand drivers often outperform. By definition, these secular trends supersede cyclical ups and downs and, given enough time, distinguish themselves as fundamental determinants of long-term return — for better or for worse. 

America and Its Aging Nukes: U.S. carbon reduction goals will be difficult to achieve without continued reliance on fission technology

It has been four years now since the 2011 disaster at the Fukushima Daiichi nuclear power plant, which spewed radiation over a wide swath of northeastern Japan and forced 80,000 from their homes. Many of those people have no interest whatsoever in returning, despite their government’s massive decontamination efforts. The administration of Prime Minister Shinzo Abe is doing what it can to restart Japan’s nuclear industry but faces much resistance.

Legacy Wealth and Real Estate: Commercial properties provide critical attributes for sustaining family fortunes

The U.S. commercial real estate market is the third largest asset class in America at more than $17 trillion, trailing only U.S. bonds ($40 trillion) and U.S. equities ($30 trillion). As a result, the asset class has become a staple in institutional portfolios, accounting for roughly 8 percent of total holdings. Family offices typically have an even larger allocation, as direct real estate constitutes 12 percent of the average investment portfolio. Yet, the strategies that drive family office investments often diverge from that of larger institutional stakeholders. For instance, family office portfolios generally overweight single-family residential properties, and when evaluating traditional commercial real estate (e.g., offices, industrial, retail and multifamily) they tend to focus on local assets within a specific region. They are also more apt to pursue higher risk opportunities while concentrating largely on the debt and tax benefits of real estate investments.

State of Dehydration: California will have to dig deep to tap new ways to deliver water, and private investors have a role to play

California is in its fourth year of a record-breaking drought that is wreaking havoc on California residents and affecting the rest of the country. With no end in sight, Gov. Jerry Brown declared a State of Emergency and imposed strict water conservation measures on residents, businesses, municipalities and farms, with a mandate to cities and towns to reduce their water usage by 25 percent.

Barrel Politics: An assessment of Iran

I think it’s important to separate the Iranian nuclear deal in terms of a timeline involved to actually get the sanctions lifted from the impact that Iran is likely to have on the markets should the sanctions actually be lifted and the deal implemented.

The Star System: What Bill Walsh, Julian Robertson, Larry Ellison and other superbosses have in common

Twenty of the NFL’s 32 head coaches trained under Bill Walsh of the San Francisco 49ers, or under someone in his coaching tree. Among hedge funds there are dozens of protégés of Julian Robertson, the founder of the investment firm Tiger Management, who have become top fund managers. From 1994 through 2004, nine of the 11 executives who worked closely with Oracle Corp. founder and CEO Larry Ellison went on to become CEOs, chairmen or COOs of other companies. Advertising legend Jay Chiat of Chiat/Day has many leaders in the ad trade, as has the great chef Alice Waters in the restaurant business.

One Continent, One Grid: North America aims to finally bring together a unified power grid to serve all forms of energy

It is a decades-old dream: a single, vast North American electric grid, from the Atlantic to the Pacific, from Mexico to the Arctic Circle. Such a continent-wide supergrid would let officials transmit the tens of gigawatts of wind-generated power from the Great Plains to cities on both coasts. It would let Pacific Northwest hydropower flow to Chicago and let Texas wind power find its way to Massachusetts, Mississippi and Montana. The benefits, measured in financial and reliability terms, would be fantastic. And yet despite many studies and even several attempts to create such a grid, it has never been achieved. The technology and the political will have been lacking.

The Color of Money: A 10-year study shows green-building strategies pay off.

Despite a growing appreciation for green-building certifications, developers and owners have continued to question the return on investment from sustainability-based real estate investment strategies. While numerous studies over the past decade have found green-building certifications such as LEED and Energy Star enhance buildings’ financial performance, the validity of the data has been questioned. As a result, owners have been reluctant to base capital expenditures on those findings.

The Criminals in the Computer: Cyber security has become the imperative of the day for financial firms, and the SEC is putting on the squeeze

Financial advisers spend a good deal of time fretting over risk when it comes to their clients’ money matters. But when it comes to protecting their own firms and clients from cyber crime, many have underestimated the threat in recent years.

News of cyber crime is now a regular occurrence, but much of the media coverage on the issue has focused on hacks of large and sophisticated companies and government agencies. Last year alone brought news of cyber crimes perpetrated against the Internal Revenue Service, J.P. Morgan Chase, and giant health insurer Anthem, just to name a few headline-grabbing hacks.

What Is Hot in Real Estate: 2016 is expected to be another good year, and the U.S. will offer the best risk/reward opportunities

People who do not have careers in real estate often think of the industry as a monolith or, at most, they will differentiate between residential and commercial properties. But people looking to invest in real estate need to understand the differences among property types and regions, and they need to know that real estate runs not in one cycle, but in many overlapping cycles in which different property types flourish and languish at different times.

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