Institutional real estate investment has always been included in the alternatives portion of the investment universe. It is only recently the sector has become mainstream with increasing number ways to invest in real estate by retail investors. But for the majority of the real estate investors are still represented by insurance companies, trusts, wealthy families. The largest professional real estate fund managers of the world reflect this with private equity behemoths like Blackstone and Brookfield.
The asset class has always been associated commercial real estate asset classes like office, retail and industrial assets. But there is a broader range of investable assets in real estate and the fastest growing segment is the real estate alternatives.
Institutional real estate funds or REITs will have allocation to these assets but they are not the bread and butter of the industry.
Alternative Real Estate Sectors
The difference between traditional and alternative real estate investments is the relative heavier degree of operational aspect of managing the assets which is not required of the traditional assets. In the alternatives area the ownership of the operator is just as important as the real estate which ultimately limits the selection of quality investable assets.
The list of alternative real estate sectors below shows the breadth of the commercial real estate sector but not all are available for retail investors. We also only focused on the equity side but we highlighted some alternative real estate debt strategies in this area elsewhere.
Purpose Built Student Accommodation (PBSA)
Student housing covers the ownership and operation of student accommodation . PBSA assets are targeted towards university students and the sector has recently becoming more mainstream with the entrance of operators backed by quality institutions.
Unfortunately there are no easy way for retail investors to gain exposure to the sector as the ownership of the operator is closely linked to the underlying property.
Fast Food Standalone Sites
Retail pad sites are separate blocks of land occupied by a drive through retail fast food chain or a standalone retail store. The most common of these are McDonald or KFC pad sites but the sub sector refers to any fast food operator of quality. The key distinction of a retail pad site is that is it leased to a blue chip operator.
The main attractiveness of investing in a retail pad site it is the limited requirement of hands on management. The leases it self are typically net leases where the operator pays the outgoing expenses and up keep capital expenditure. There aren’t a lot of requirement on the landlord and because of this, it is highly sought after by high net wealth investors.
Typical characteristics of a retail pad sites is the value of the property is usually in the range of $2 to $5 million. The long term value of the sites will revert to land value as the leases run off but given the location of the sites there is always a strong chance the operator will renew their lease at the end of the current term.
Petrol Stations Investments
A sub sector in the retail pad site space is gas stations. We are always adverse to these sites in particular due to potential contamination risks and the limited alternative use for the site if the petrol station operator vacate the premises at the end of the lease.
Childcare Center Investment (Social Infrastructure)
Childcare operators are another set of the tenants which will enter into long term leases and similar to retail pad sites, some childcare centers can also be bought by it self. It is important to note not all child care operator covenants are the same and due diligence on the quality of the operator is just as important as the real estate.
Senior Housing
Senior housing covers the purpose built retirement villages where the target tenants profile are residents above certain age range.
Self Storage
Self storage assets has been around for a long time. The market is highly segmented where mom and pop owner/operators make up a large portion of the market. Institutional presence in the sector is still low compared to the mainstream asset classes.
Manufactured Housing
Manufactured housing is a modern term for trailer parks. Trailer parks own the land and leases the land and the manufactured housing above the land. In other instances tenants in most instances own the house but not the land. In addition to this there is an aspect of tourism as result of seasonal demand.