Real Assets Adviser

July 1, 2024: Vol. 11, Number 7

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From the Current Issue

Are co-living and micro-housing bad ideas whose time has come?

With an estimated shortage of 3.2 million homes in America, there’s no denying there’s a housing crisis in the United States. Supply and innovative solutions, including niche property types such as micro-housing and co-living, are going to need to be scaled in order to answer the deficit. The contributing factors to America’s housing crisis are manifold, but a big one is downzoning, the process by which a municipality restricts certain building types, such as apartment buildings, in particular neighborhoods, and allows only single-family properties.

5 Questions: Diagnosing what ails healthcare, and its prime investment opportunities

The U.S. healthcare business spends nearly twice the average of other market-based democracies, or a whopping 17.8 percent of U.S. GDP. Meanwhile, outcomes are poor. To date, lowering costs and improving outcomes have been sticky and complicated problems. Among the people seeking to address the healthcare industry’s seemingly intractable issues is Mary Tolan, founder and managing partner of Chicago Pacific Founders.

Might as well face it, you’re addicted to ...

If you’re like most of the people in this business, you rely on spreadsheets for just about everything you do. In fact, I’d wager that most of you reading this column haven’t a clue as to how many spreadsheets are in use in your organization. (Count the number of people in your organization who would tend to be spreadsheet creators and users. Now multiply that number by the average number of spreadsheets most of those professionals have built and use on a regular basis. That’s a lot of spreadsheets.) In fact, the people in your organization most likely are using hundreds — if not thousands — of different spreadsheets to accomplish various analytical and reporting tasks.

Air taxis on the way: Quiet, electric eVTOLs may be flying passengers as early as 2025

Imagine a future with nearly silent air taxis flying above traffic jams and navigating between skyscrapers and suburban droneports. Transportation arrives at the touch of your smartphone and with minimal environmental impact. This isn’t only science fiction. United Airlines has plans for these futuristic electric air taxis in Chicago and New York. The U.S. military is already experimenting with them. And one company has a contract to launch an air taxi service in Dubai as early as 2025. Another company hopes to defy expectations and fly participants at the 2024 Paris Olympics.

Emerging self-storage hot spots: Markets with the greatest growth opportunities

The self-storage industry has seen unprecedented growth lately, with the past 10 years delivering 25 percent of the total existing inventory of self-storage nationwide. Although still below pre-pandemic levels in terms of new supply, 2023 saw 53 million square feet of new space added to the market, and 2024 is on track to see the delivery of no less than 54 million rentable square feet.

Converting underutilized hotels and office to residential requires different approaches

We face a national housing shortage, while commercial property owners and investors contend with an oversupply of empty office space, as well as underutilized — and closed — hotels throughout the United States. As a result, owners and developers are increasingly considering commercial-to-residential conversions as a way to solve both problems.

Learn from the past: Real estate veterans discuss the lessons of recessions

Over the past four decades, U.S. markets have experienced several downturns and periods of inflation, influenced by various economic factors and events. During the early 1980s, the United States faced high inflation rates, leading to a recession in 1981–1982. In 1987, the infamous Black Monday saw global stock markets plummet. In the early 1990s, another recession struck, fueled by a real estate downturn and fallout from the Savings and Loan (S&L) crisis. However, the economy quickly recovered, aided by technological advancements and the dot-com boom.

U.S. energy surge: Capitalizing on demand with copper and natural gas

Did you know that every time you type a query into ChatGPT, it requires about 10 times as much electricity to process as a Google search? That’s according to Goldman Sachs, which writes in a new report that electricity consumption in the United States is poised for a major surge for the first time in years, due in large part to the rapid buildout of data centers that power AI platforms such as ChatGPT.

Colorado’s weed market shrinking fast and making other states nervous

In 2020, Colorado’s cannabis market soared to $2.2 billion. But only three years later, sales had plummeted to $1.5 billion, leading to layoffs, closures and downsizing. The market downturn has spelled trouble for state finances too: Colorado took in just $282 million in cannabis tax revenues in the most recent fiscal year, down more than 30 percent from two years earlier.

Tax Update: Capitalizing on tax-class 2A and 2B properties

Multifamily residential deals have always been complex in New York City, but with elevated interest rates, ongoing regional bank turbulence and the loss of the 421a incentive program, it is nearly impossible to make residential projects pencil out. Despite these stiff headwinds, developers have found a way to create much-needed new housing in the city, notably by embracing projects that fall in the class 2A and 2B tax categories.

Talking Points: Quotations from people in the news, July 2024

John Mackey, founder of Whole Foods Market: “I was told I was crazy. I mean, I think most entrepreneurs are told things like that when you have a new idea that goes against conventional thinking; you’re generally climbing a wall of skepticism.”

Sun Belt rising: How the Southern-tier markets radiate long-term stability

Sun Belt real estate markets have historically shown stability and growth compared with other regions, and the trend is expected to continue. The region’s attractiveness is driven by its robust population expansion, which has been a direct result of corporate relocations, affordable cost of living and business-friendly environments.

Research Roundup: July 2024

Fiduciary Trust International’s latest report, Too much of a good thing: Overcoming concentrated portfolio risk, warns, among other things, a high concentration of a single investment within a portfolio can become a growing investment risk as time goes on. Read the paper here.

Regulation Update: RIA M&A 2024 — navigating the evolving landscape

The registered investment adviser (RIA) mergers and acquisitions market is undergoing a significant transformation. After a decade of continuous growth, deal volume witnessed a slight dip in 2023. However, industry experts anticipate a resurgence in the coming years, fueled by a confluence of factors that are reshaping the landscape — including a range of regulatory hurdles. Understanding these trends is crucial for any RIA owner or leader contemplating their firm’s future.

Profile: Eric Adler, CEO of PGIM Private Alternatives

Less is more. In design, it’s a principle that promotes clarity and simplicity. For the individual, it suggests minimalism, that one finds less anxiety and greater happiness and satisfaction with fewer material possessions. Simple living and high thinking, one might say. For Eric Adler, CEO of PGIM Private Alternatives, it means focusing on the essential, traveling light and maximizing flexibility. In a sense, it’s an incongruent concept for a financial services professional who seeks to raise maximum capital and earn excess returns, but it’s a theme Adler learned, in part, from his itinerant and impetuous father, Bernard Adler, who was filled with wanderlust, bouncing from one U.S. and European city to another.

Q&A: Global demand for nuclear energy is escalating

The use of and demand for nuclear energy is on the rise globally, due in large part to the efforts to increase both clean energy and energy independence. Countries in Europe, Africa and South America are all making efforts to build next-generation reactors and increase the global nuclear fleet. Want to learn more about what is going on with nuclear energy around the world? Here is what Ted Jones, senior director for national security and international programs at the Nuclear Energy Institute, has to say.

No place like home: The investment opportunity in residential REITs

The private commercial real estate market has dominated media headlines and has been slow to adjust reported values as the macroeconomic background changes. This is the opposite for the listed/public market, which is forward looking, being priced daily in stock markets, with valuations very much already reflecting the negative impact of higher rates on underlying property values. This means listed real estate investment trusts (REITs) are trading at wide discounts to private asset values, having already “priced in” the impact of higher rates, and today stands to benefit from a reversal in the direction of interest rates.

Chill winds blow: Why U.S. offshore wind power is struggling

America’s first large-scale offshore wind farms began sending power to the Northeast in early 2024, but a wave of wind farm project cancellations and rising costs have left many people with doubts about the industry’s future in the United States. Several big hitters, including Ørsted, Equinor, BP and Avangrid, have canceled contracts or sought to renegotiate them in recent months. Pulling out meant the companies faced cancellation penalties ranging from $16 million to several hundred million dollars per project. It also resulted in Siemens Energy, the world’s largest maker of offshore wind turbines, anticipating financial losses in 2024 of around $2.2 billion.

Chinese EV margins might weather new EU tariff plan

Deliveries of battery-powered cars within China represent about 60 percent of the global total, and the country is also a dominant player in overseas shipments of local new energy vehicle (NEV) brands as well. Europe was the destination for about half of the NEVs China exported last year — a categorization that covers both hybrid and fully-electric vehicles (EVs).

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