Real Assets Adviser

February 1, 2020: Vol. 7, Number 2

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From the Current Issue

And then there is the hotel sector: A hot property type that is poised to get even hotter as tourism surges

Ask any experienced real estate operator or investor about the four main property types and the following will roll effortlessly off their tongues: office, industrial, retail and residential. Noticeably missing is hotel real estate. Though it would be a stretch to insist the four major property types be expanded to five to accommodate hotels, it is worth noting that hotel fundamentals have never been better — despite a formidable onslaught from Airbnb, VBRO and other members of lodging’s shared economy. What’s more, there is every reason to believe hotel economics will get better yet, as tourism (especially from Asia) continues to explode, with the United States being one the chief destinations.

Profile: Richard Hough, CEO of Silvercrest Asset Management

When it comes to IPOs, the thrill is gone. What was once a process full of the romance and excitement of becoming a publicly traded company on Wall Street, but that has largely dissipated as the process has become too expensive and painful for many companies to bear. Underwriting eats up 4 percent to 7 percent of gross proceeds, according to research by PwC, plus an additional $4.2 million of offering costs such as the required financial assessment followed by the roadshow to visit and pitch institutional investors on the opportunity. Once public, CEOs estimate the annual cost of being public between $1 million and $2 million per year. Then, for many companies, there is the relentless short-term pressure exerted by shareholders to keep share prices aloft. Add the ill-fated IPOs of companies such as WeWork and it all helps explain why in 1996 there were more than 7,000 domestic companies listed on U.S. stock exchanges compared with fewer than 4,000 today.

For renewables to boom, better storage technology must bloom

Many are envisioning a future where renewable forms of energy supplant fossils fuels and finally give the environment relief from carbon pollutants and the threat of oil and gas eventually running out. And many investors are betting billions on renewables generating lots of financial returns in addition to energy. Witness JLL’s recent declaration that it sees investment opportunities in the “surging demand” for alternative sources of energy.

The new economics of sustainable real estate

Sustainability has been gaining a lot of attention, with youth climate strikes and global activism making headlines. It is also increasingly informing the investment decisions of investors. The commercial real estate industry has done a considerable amount of work to construct and upgrade commercial structures so they are more sustainable. Because so much has been accomplished to this end, it might seem as though only marginal gains in energy reduction and cost savings lie ahead. On the contrary, substantial economic gains can still be achieved.

Mega-trend 2040: Futurist tapped by Allianz to explore future trends, including energy

The need to make the transition from burning fossil fuels to generating energy from clean, renewable sources — such as the sun, the wind, biomass, hydro, geothermal sources — has become very urgent. Today, only 8.4 percent of the world’s electricity comes from renewable sources. However, it is forecast that by 2050, half of the world’s energy requirements will be met from renewable sources.

Golden year: Precious metals soared during 2019

2019 marked the best performance for the precious metals in nearly a decade, with gold bullion closing the year at $1,517 per ounce (gaining 18.31 percent for the 12 months). Silver bullion ended the year at $17.85 (up 15.23 percent in 2019), while platinum climbed 21.56 percent in 2019, and palladium soared 54.24 percent. Gold mining equities showed notable strength, finishing 2019 up 43.49 percent.

Wealth and prosperity: How real estate can deliver compelling capital growth and long-term income streams for family offices

Family offices exist for the purpose of investing and managing funds to sustain the family’s long-term wealth and prosperity. The wealth controlled by billionaires worldwide is estimated to be roughly $9 trillion. There is limited knowledge about how much capital is managed through professional family office structures; The Economist provided an indication of $3 trillion to $4 trillion in a December 2018 story titled “Family offices become financial titans: The growing ranks of billionaires’ in-house investment teams.” It is estimated that there are about 5,300 single-family offices, of which three-quarters are in North America or Europe. In addition, there are many multifamily offices that service up to hundreds of wealthy families.

Alternatives and the shadow of SEC scrutiny

Alternative investments can present significant challenges to advisory firms, ranging from structural elements to tax considerations to regulatory concerns. Not to mention questions relating to how much of a client’s assets to allocate to a specific alternative investment and to alternatives generally. And that’s all before the performance of the asset class or asset type underlying the alternative investment is taken into account.

5 Questions: Flexible office space has only just begun

Flexible office space, as embodied by companies such as WeWork, has captured the fascination of landlords, tenants and investors. CBRE has released a number of reports on this topic and their lead author has been was CBRE executive Julie Whelan.

The growth of the private credit market: Investors have gravitated to private credit but downward pressure on U.S. interest rates remain a key variable

Private credit is one of the fastest growing areas of alternative investments today, growing from $200 billion in 2007 to nearly $800 billion today, according to Preqin estimates. A Preqin survey notes that one-third of institutional investors now have an allocation to private debt averaging 6.3 percent, with 32 percent of investors seeking to increase their allocation in 2020.

Investing star Sarah Cone is bringing ‘impact venture capital’ into its own

Take the riskiest category in finance (venture capital) and combine it with an investing strategy widely viewed with significant misgivings (impact investing) and what do you end up with? In the case of Sarah Cone, founder of the New York City–based VC firm Social Impact Capital, it’s a formula for disrupting the venture capital business by focusing on “teams doing good with technology.”

Why nuclear power is a must

Here’s the dilemma: The United States — and many investors — are fixated on renewables, chiefly wind and solar, and they are advancing rapidly, but not rapidly enough to cleanse the air of carbon emissions anytime soon, especially with the planet’s energy needs spiraling. The zero-emission energy source capable of scaling rapidly and diminishing the addiction to fossil fuels is nuclear power.

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