Real Assets Adviser

February 1, 2021: Vol. 8, Number 2

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From the Current Issue

Profile: Brandon Thomas, co-founder and CIO of Envestnet

Arsenio Hall, during his heyday as host of the first incarnation of The Arsenio Hall Show, one of TV’s top-rated late-night talk shows at the time, made a point of saying you know you’re excited about your life when you don’t use an alarm clock to get yourself out of bed in the morning. Brandon Thomas can relate. His eyes are open and his body clambering off the mattress at 5 a.m. each morning, without the prompting of a caustic buzzer, ocean waves, chirping birds, or even a sunrise lamp. No, Thomas is not a TV or entertainment star, but his role as co-founder and chief investment officer of Envestnet has given him plenty to be excited about.

Corporate Transparency Act could make real estate industry subject to significant reporting burdens

On Dec. 11, 2020, Congress passed the Corporate Transparency Act (CTA) with a veto-proof majority, in an apparent attempt to target shell companies commonly used in private equity transactions (including real estate transactions) in the United States. Supporters of the CTA argue that its new reporting rules, discussed in detail below, are essential to combating crimes that make use of anonymous shell companies, such as money laundering, human trafficking and illegal black-market operations. However, some detractors argue that, in addition to unreasonably intruding into the private affairs of law-abiding taxpayers, the CTA also stands to introduce significant reporting burdens, especially in the real estate industry, where multi-tier entity structures are common. The stakes are high: Failure to comply with the new requirements could even result in prison time and stiff monetary penalties.

Innovations in infrastructure finance and ideas from ‘Amtrak Joe’

President-elect Biden and the 117th Congress must craft bipartisan infrastructure legislation early in the new administration. We’ll focus on public infrastructure since the market for financing private infrastructure is efficient. “Amtrak Joe,” who regularly commuted during his years in the Senate, is well aware of the need for innovation in financing public infrastructure.

Six energy milestones of 2020

2020 will be a year that lives in the minds of energy business executives for decades to come. For traditional energy executives, it will be a year of infamy; for clean-energy executives, a year when renewables demonstrated resilience and staying power in the face of uncertainty.

Data centers move from niche investors to center stage

Big data keeps getting bigger. And faster. And more valuable. Consider that 90 percent of all data was created in the past two years; then try to imagine that by 2025 worldwide data is expected to hit 175 zettabytes. To put that in perspective, if you were to store 175 zettabytes on DVDs, your stack would be long enough to circle Earth 222 times. Processing, housing, streaming and securing all that data has given rise to the evolving modern data center. The elements that appeal most to investors today include:

Weed business on a roll: U.S. legal pot market projected to double to $41.5b by 2025

Fueled by strong consumer demand, legal sales in cannabis for medical and recreational use are projected to grow at a compound annual growth rate of 21 percent, to reach more than $41 billion by 2025 (from $13.2 billion in 2019), according to a report from New Frontier Data titled Cannabis in America for 2021 & Beyond: A New Normal in Consumption and Demand. Monthly consumer spending increased by an average of $149 between March and October in 14 legal markets analyzed.

Shooting star Cathie Wood and ARK Investment Management launching space exploration ETF

Talk to me about business and investing for more than 10 minutes and I start speaking in future tense — about emerging technologies such as virtual reality, quantum computing, gene therapy and advanced forms of energy such as hydrogen and nuclear fusion. It isn’t just that I find these subjects fascinating, it’s that they’re driving the future of business, and awareness of them is critical to successful long-term investing. The maxim goes like this: “Investing isn’t about where we are today, it’s about where we will be tomorrow.”

Income and impact: The case for affordable housing debt

Emerging from a tumultuous 2020, investors face a number of challenges. For long-term investors the environment of historically low yields continues. Many traditional fixed-income strategies are not generating the income investors need. At the same time, 2020 exposed social and economic inequalities that fostered greater interest and demand for impact investing. In fact, many investors now look to use their capital not just to generate positive financial returns but to also provide positive impact in the communities they live and work in, particularly as we embark on a post-COVID recovery.

Q&A with a former SEC examiner about the agency’s new advertising rule

Amy Lynch, who has spent 25-plus years as a compliance professional and regulator with the SEC and FINRA, is founder and president of FrontLine Compliance, a consultancy to investment firms. We asked her to comment on the new SEC rule intended to expand the ability of investment firms and funds to advertise their products and services to investors.

5 Questions: Defining and capitalizing on next-generation infrastructure

One would be hard pressed to find an asset class of greater interest to investors these days than infrastructure, as people seek hard assets capable of performing well during times of rising inflation and interest rates. Indeed, other than during equity bull markets, infrastructure has delivered better returns by capturing more upside than bonds and less downside than either equities or bonds.

Blackstone executives predict top 10 surprises for 2021

For the 36th consecutive year, Blackstone vice chairman Byron Wien has issued his predictions for the top 10 surprises for 2021, and this time he has collaborated with Joe Zidle, chief investment strategist of private wealth solutions. Wien defines a “surprise” as an event that the average investor would only assign a one-in-three chance of coming to pass, but which he believes is “probable,” having a better than 50 percent likelihood of happening. Wien began the tradition in 1986 when he was the chief U.S. investment strategist at Morgan Stanley. He joined Blackstone in September 2009 as a senior adviser to both the firm and its clients in analyzing economic, political, market and social trends. In 2018, Zidle joined Wien in the development of the 10 surprises list.

Revisiting opportunity zones

In 2017, the bipartisan legislation creating the qualified opportunity zones (QOZ) program made the investment world giddy with excitement. This was more than just a subsidized lending program, as nearly all previous incentive programs had been. This legislation created the ability to raise qualified opportunity zone private equity funds, where private investment-type returns might possibly be realized, while making use of capital gains tax incentives and other tax deferrals to further boost returns. The goal was to make private investing in economically distressed communities too attractive to pass up, and thus turn these areas into vibrant growth zones where people would want to live, work, play and invest.

Rethinking multifamily design

Though vaccines are being rolled out across the United States to combat COVID-19 and get people back to traditional workspaces, those who shifted to home offices are likely to continue in that mode for months, or even permanently. There are indications that many firms may continue remote work strategies even after unfettered by public health concerns.

A cautionary tale for real estate investors contemplating public or private REITs

It has been quite a year for those of us in the investment world — mostly fascinating, frequently challenging, and occasionally frustrating. The COVID-19 pandemic, and subsequent effects on markets and global economies, has been directly or indirectly responsible for much of this, accelerating areas ripe for change, causing societal shifts with rippling impacts in many ways, including on the value of real estate.

The ‘Whole Foods Effect’ on apartment rents and absorption

As the maxim goes, the quickest way to a man’s heart (or a woman’s) is through his stomach. Similarly, it appears the quickest way to get higher rental rates from tenants is also through their stomachs. It’s called the Whole Foods Effect, which has shown that apartment buildings with a Whole Foods Market on the ground floor commands higher rents from tenants.

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