Real Assets Adviser

May 1, 2024: Vol. 11, Number 5

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From the Current Issue

Regulation Update: SEC enhances regulation of private fund advisers

The Securities and Exchange Commission adopted new rules and amendments designed to increase transparency and protect investors in private funds. The changes affecting advisers registered with the SEC under the Investment Advisers Act of 1940 were released in August 2023. Private fund gross asset value has effectively doubled during the past seven years, from $10.3 trillion in fourth quarter 2015 to $20.5 trillion in fourth quarter 2022. These private funds have become important to financial markets, increasing exposure for direct investors and indirect investors participating in pension plans, retirement plans, endowments and foundations. As a result, the SEC is tailoring its rules to address risk and harm to investors and restrict adviser activity contrary to the public interest and protection of investors.

Profile: Ali Dibadj, CEO of Janus Henderson Investors

After re-careering into financial services following a management consulting stretch with McKinsey & Co., Ali Dibadj likely knew he was on the right track when, during his early years at AllianceBernstein, he was named the top financial analyst in the consumer space by Institutional Investor in the media outlet’s well-known annual survey of investment analysts. The competition banks its ranking on the surveying of institutional investors who vote for the analysts whose work they most respect.

Necessity retail: The battle-tested real estate niche

Following the great financial crisis (GFC), “retail” became synonymous with “mall.” This misleading equation grew out of private capital’s shorthand for various shopping center formats, including neighborhood centers, power centers, lifestyle centers, single-tenant retail and, yes, malls, among others. By lumping them together, they failed to differentiate retail into its component parts, which have proven historically to perform very differently.

Preparing for peak oil: Saudi Arabia expands diversification efforts as non-oil economy

For the first time on record, non-oil revenues represented half of Saudi Arabia’s GDP in 2023. Per the kingdom’s Ministry of Economy and Planning, the country’s non-oil economy was valued at about $453 billion at constant prices. Saudi Arabia’s private-sector investments expanded by a brisk 57 percent in 2023, reaching a record high of $254 billion. The categories for arts and entertainment and real service exports grew by 106 percent and 319 percent, respectively.

Have secondaries reached a tipping point?

One number — $3.2 trillion — goes a long way toward explaining why secondary funds raised 92 percent more capital in 2023 than they did in 2022 (albeit from a very small base). That’s the unrealized value represented by the 28,000 unsold companies weighing down buyout portfolios globally, more than 40 percent of which are four years old or older.

Multifamily loans are coming due and facing a stress test

Higher interest rates, lower property values and a surge in supply will test the multifamily market in the next few years as loans come due on a large volume of properties. Loans on more than 58,000 properties totaling $525 billion will mature over the next five years, nearly half of the total $1.1 trillion of loans currently backed by apartments. In the short term, through the end of 2025, loans on 6,800 properties totaling nearly $150 billion are set to mature.

Financial advisers and the move to democratized investments and investor control

At a recent financial conference, I found myself engaged in a conversation that highlighted investment advisers’ reluctance regarding non-platform private market investments. The question was simple, “Why does the system make it so difficult for quality sponsors to be placed with your clients?” The answer was as telling as it was straightforward: “career risk.” This is not the first time I’ve heard this feedback.

Five senior housing trends shaping growth in

The year ahead will likely be a dynamic one for senior housing and care, with unfolding trends that will shape the sector in meaningful ways for the next decade as boomers age into the demographic most likely to access housing and services. Five trends highlight some of the sector’s growth predictions for 2024.

Ethan Penner and Chad Carpenter join forces to launch Reven Office REIT

Ethan Penner, a pioneer specializing in the real estate, mortgage credit and financial markets, and Chad Carpenter, the founder of Reven Capital, have plans to launch Reven Office REIT, a U.S. office–focused real estate finance company. The new company is seeking to raise $1 billion through a lead investor and a blind pool IPO to provide office owners and investors with financing solutions.

Aviation moving toward digitalization, electrification and sustainability

In the not-so-distant past, the idea that waterfalls, butterfly gardens and canopy bridges could find a home within an airport — the most unlikely of places — may have been chalked up to science fiction. But these features are real, and they reside in Singapore’s Changi Airport, one of the largest air hubs in Asia. In the Jetsons-style universe that is fast becoming our reality, airlines have chief digital officers instead of chief information officers; commercial airplanes run on hydrogen or feedstock rather than jet fuel; and AI powers every aspect of the traveler experience. These innovations represent a larger transformation taking place within the aviation sector — a response to the growing need to modernize and decarbonize.

Confidence in global listed infrastructure continues

After a year in which defensive stocks suffered disproportionately from the higher-for-longer interest rate narrative, we believe listed infrastructure is attractively valued to start 2024. Valuations look cheap relative to equities, with the stocks trading near levels seen during the global financial crisis. This is despite the bounce we saw at the end of 2023, when a series of softer inflation prints and weaker economic data catalyzed a sharp pullback in bond yields. Listed infrastructure also looks attractively priced relative to unlisted infrastructure assets, with average trading multiples for listed infrastructure companies at an estimated 30 percent discount to the latest available private infrastructure transaction data.

A hot meeting in the Big Easy: Never underestimate the power of a small number

In March in New Orleans we held our first Real Assets Adviser editorial advisory board meeting in two years. It was our smallest-ever gathering of board members, and likely our best yet. The intimacy of having only 20 participants was key for a day-and-a-half event (normally choked with 40 to 50 participants) because it spurred more vigorous discussion than past meetings.

5 Questions: The new requirements forcing senior housing execs up their game

More active lifestyles, tech innovations, demands for price transparency and the pressure of elevated interest rates are among the forces exterting their influence on senior housing properties. Some senior housing operators are up for the challenge. Danette Opaczewski, COO and executive vice president of resident experience for Revel Communities, has seen the unfolding evolution during her more than 35 years in the hospitality and real estate industries.

Talking Points: Quotations from people in the news

Dave Calhoun, CEO of Boeing, on his decision to leave the aerospace company: “It was 100 percent my decision. I’ve entered my fifth year, at the end of this year I’ll be close to 68 years old, and I’ve always said to the board I would give them plenty of notice so they could understand and plan succession in regular order, and that’s what this is about — it’s me giving them notice that at the end of this year I plan to retire.

Research Roundup: May 2024

The advent of artificial intelligence may represent a watershed in human history, according to Carlyle. The firm has much more to say in a report titled Brave New World AI and its Downstream Implications. Download it here.

Reimagining Big Apple real estate: Remote work, declining CRE values, demand bold solutions

The state of New York City’s commercial real estate industry was forever changed by the COVID-19 pandemic. The growing trend of remote and hybrid work has severely reduced office space occupancy, to about 40 percent of pre-pandemic levels, according to commercial real estate leasing data. Reduced occupancy has in turn led to commercial real estate values decreasing by as much as 50 percent in some areas of the city.

Taking a page from REITs: The case for a standardized infrastructure investment vehicle

From our perspective, infrastructure is an extensive, and often unfortunately underappreciated, broad asset class with considerable underlying debates along with opportunities. The underappreciation largely arises from the rather ubiquitous nature of the asset class. Such ubiquity results in many parts of the asset class being taken for granted and “just” being viewed as a “public good” in classic economic terms. With that background, we start with the conclusion of this article: In our view, there is a clear case for some form of standardized and likely simplified investment vehicle dedicated to infrastructure investments.

The slow-speed progress of U.S. high-speed rail projects

There are proliferating bullet trains speeding across Europe, Japan, China and South Korea. Even Indonesia has China-built high-speed rail. But there are no true bullet trains in the United States, which for passengers remains a vast land linked together primarily by highways and skyways. To be sure, there are a couple U.S. routes that approach the accepted definition of a bullet train, of rail service that whisks people along at more than 150 miles per hour. But by far the world’s fastest bullet trains are in China, led by the Shanghai Maglev at the apex of the rail world with a top operating speed of 460 kilometers per hour, or 290 mph.

Solar power occupies a lot of space; here’s how to make it beneficial to the land it sits on

As societies look for ways to cut greenhouse gas emissions and slow climate change, large-scale solar power is playing a central role. Climate scientists view it as the tool with the greatest potential to reduce carbon dioxide emissions by 2030. In the United States, the Department of Energy predicts solar will account for nearly 60 percent of all new utility-scale electricity-generating capacity installed in 2024.

Understanding the green wave in real estate financing

The dynamics surrounding traditional capital flows into the U.S. commercial real estate market are undergoing a significant transformation, witnessing a decline of around 38.6 percent in the first half of 2023 compared with the same period in 2022. Diminishing access to traditional capital can largely be attributed to tighter credit conditions and elevated refinancing needs, which have resulted in decreased lender activity and a much more competitive funding landscape.

Tax Update: Maximizing solar income with U.S. tax credits

While U.S. solar development, up to now, has been concentrated in states such as Texas and California, the Inflation Reduction Act (IRA) has expanded opportunity in other areas, including in coal communities and low-income areas where battery storage technology manufacturing and deployment is being focused, says a late 2023 report from Reuters.

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