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CHI health clinic building

Alternatives sector


We believe that alternative real estate, in particular some housing, healthcare and technology sub-sectors, are poised to play a larger role in institutional investor portfolios. They have the potential to increase portfolio diversification given diverse demand drivers and could generate outperformance relative to traditional real estate property types.

Key facts

$5B
assets under management
104
assets worldwide
15+
years of investing

Housing sector demand drivers

Manufactured housing
  • Manufactured housing has the lowest historical and projected supply growth due to high barriers to entry resulting from prohibitive zoning restrictions
  • Limited capital expenditure burden as the majority of residents own their homes, whereas the landlord owns the underlying land which limits its shared capital exposure
  • Resident homeownership leads to low tenant turnover and consistent NOI growth
Single-family housing
  • The single family renter demographic (ages 35-44) is projected to grow at more than twice the rate of the general U.S. population over the next decade
  • 88% of U.S. apartment inventory has two bedrooms or less, which is not large enough to house growing families
  • A highly liquid asset class with ‘sticky’ tenancy, a large investment universe, and low institutional ownership at approximately 2%
Self-storage
  • Expedited migration of population given major life changes, desire to change primary living situation
  • Demonstrated low cap-ex burden, low operational intensity and low obsolescence risk throughout multiple real estate cycles
  • Resilient cash flows given storage derives benefits during both periods of growth and during periods of downturn. Sticky tenants, needs-based use, and smaller monthly rent checks help keep consumers in-place
Student housing
  • Students prefer housing that combines the modern amenities of traditional apartments with the collegial atmosphere of dorms without the drawbacks of older obsolete buildings or isolating distance of a non-purpose built off-campus apartment.
  • Higher learning demand has historically offered a counter-cyclical element since a weaker labor market encourages people to pursue education. Consequently, student housing exhibited greater resilience than traditional apartments in the global financial crisis.
     

Healthcare demand drivers

Life science
  • COVID-19 likely to spark additional R&D for drugs, therapies and vaccines for future viruses. Served as nucleus for pharmaceutical and biotechnology tenants to develop therapies and repurpose drugs to treat and cure COVID-19 patients
  • Strong rent collections and returns relative to traditional office
  • Secular demand is also driven by the development of drugs and medical devices. Human genome sequencing (since 2015) continues to drive rapid advancements in drug development, resulting in increased demand for life science space
Medical office
  • Driven by a continued shift from inpatient hospital care to outpatient visits and surgeries in an effort to reduce healthcare costs
  • High-acuity use spaces require substantial tenant investment on the space and equipment, resulting in high tenant retention rate relative to traditional office
  • CMS proposals to expand outpatient services reimbursements and eliminate services on the inpatient only list
  • Increased telehealth utilization to compliment higher acuity
Senior housing
  • Potential residents likely to desire newly constructed, state of the art facilities that integrate telemedicine capabilities
  • Aging baby boomers entering retirement has propelled investor interest in seniors housing as this generation will eventually need to look beyond their traditional single-family homes and towards housing facilities with more medical support. However, the existing stock of senior housing will need to reprice from pre-COVID-19 levels to pay investors for the myriad risks associated with the sector: chronic oversupply, obsolescence, financially weak operators, a demand wave that remains 5-7 years away, and baby boomers delaying a move into senior homes due to COVID-19 but also due to their more independent mindset

Technology demand drivers

Data center
  • Accelerated migration of IT infrastructures to cloud servers as companies reduce long-term IT costs and enhance their work from home abilities
  • Growth in data is driven by rising consumption of online content, the rise of big data, and companies migrating their data to the public cloud to save on cost

Insights and news

Investment requirements
Discover our investment requirements.


Definitions
  • Single family housing: Detached home or residence rented annually which cater to families or individuals seeking a ‘home’ rather than an apartment that do not have either the means or desire to be a home-owner
  • Manufactured housing: Purpose built communities, which confer the advantages of single-family home-ownership while also offering additional amenities at an affordable price point. Community owners will typically own and lease the land to residents, while the resident owns and manages their home
  • Self storage: Individual units that can be rented to consumers for short or long term storage. Storage units, on average, occupy a 10x10 space (100 sq ft), but with significant variation
  • Student housing: Purpose-built student housing facilities with modern amenities and walking distance to campus; focused on the top 100 universities with growing enrollment and limited supply
  • Life science: Facilities that provide space for research institutions, pharmaceutical companies, biotechnology firms and medical device companies to conduct research & development
  • Medical office: The university of medical office is constantly evolving and includes product types such as urgent care, surgery center, dialysis centers and freestanding ERs. Target product types: On-campus/Off-campus outpatient center, Medical fitness/wellness center, cancer center, Orthopedic center, Micro-hospital, post-acute care center and behavior health center
  • Seniors housing: A variety of offerings within the seniors housing space include; Independent Living, Assisted Living, Memory Care and Skilled Nursing, segmented based on the level of services offered
  • Data center: A data center is a highly specialized facility housing critical IT infrastructure for corporations, governments and other organizations. These facilities provide a highly reliable, secure environment with redundant mechanical, cooling, electrical power systems and network communication connections
Contact us
Michael Hunter
Michael Hunter
Global Head of Real Estate Alternatives and Strategic Transactions
Source: 30 June 2020