Key real estate investment strategies from SuperReturn North America

SuperReturn North America, held earlier this month in Miami, brought together top investors to discuss opportunities in private markets - including the evolving real estate landscape. During the event, Darrell Crate, Founder and Managing Principal of Easterly Asset Management, shared insights on where investors can find long-term value despite market volatility. From demographic-driven opportunities in senior and student housing to the advantages of public vs. private real estate funds, this session highlighted key considerations for wealth preservation and growth in today’s environment. Here’s a recap of the most valuable takeaways.

What are the key considerations for investors looking at the sector right now?

Real estate continues to offer a strong thesis for investor portfolios, even withstanding the challenges of higher interest rates and inflation. We believe investors should look toward opportunities that address the needs of the current population, where demand remains high despite market conditions (such as senior and student housing). From a growing aging population that requires more senior living facilities, to the rebound of college enrollment post-pandemic, investors need to consider demographic drivers where demand is uncorrelated to macroeconomic conditions and focus on long-term socioeconomic trends in order to generate wealth over time.

Let’s dig into that a little bit – what sectors within real estate are particularly compelling right now? Why?

We believe the most successful way to invest in real estate long-term is to invest in businesses, properties, and assets that are demographically driven. Demographic tailwinds and a growing supply/demand imbalance provide strong market fundamentals to invest in real estate.

Senior housing is experiencing a boom with a growing population of aging baby boomers combined with limited new infrastructure development, allowing this sector to be well-positioned for long-term growth. Disruptions in occupancy rates stemming from the COVID-19 pandemic have also rebounded amid rising demand. As such, investors have a real-time opportunity to capitalize on this sector, providing a solution that addresses infrastructure gaps and meets the demand that will steadily increase with the population.

And, this is just one example of an opportunity arising in the industry right now, driven by immediate population needs.

Student housing, for example, offers another attractive investment opportunity in a sector that has more stable demand. With colleges maintaining steady enrollment rates year-over-year and consistent demand for off-campus housing, investors can take advantage of the sector’s durability.

What is your advice to private wealth investors, or financial advisors who represent them, on how to think about real estate in their portfolios today?

Investors need to think about what they want their real estate portfolio to do. Income-focused strategies vary from those tied to capital appreciation or diversification through returns that aren’t correlated to other assets in the portfolio.

Once those objectives are identified, we work closely with clients to provide the right product to pursue that goal – preferably one that typically has a strong compounding effect to help maximize growth and minimize tax burden.

For example, investors seeking to generate income or build wealth through capital appreciation should consider looking into public REITs which can offer lucrative dividends. On the other hand, if diversification is the goal, specialty real estate such as student or senior housing, can offer investors a way to add an uncorrelated piece to their portfolio.

How should investors think about investing in public real estate funds vs. private real estate funds?

When considering exposure to public versus private real estate funds, investors must understand the key differences and how they align with their overall investment strategy.

In private real estate, investors should consider whether investing in this asset class will improve the overall efficiency of their portfolio and if the potential return justifies the level of illiquidity they could be taking on.

Private real estate investing also offers direct ownership, which is suitable for long-term strategies but also results in illiquidity and less transparency than public real estate. Concurrently, illiquidity can increase the potential for higher returns and the ability for value-added strategies that may improve the quality of an asset and increase its value.

Public real estate funds offer greater liquidity as they can be bought and sold, similar to investing in equities, and with the same level of transparency as they are publicly traded. Given less stringent requirements to invest, public real estate historically has also been more accessible than investing in private funds. The downside of having more accessible and liquid investments is that they are more susceptible to market volatility.

Ultimately, investors should always focus on two key areas. First, they need to build a portfolio that optimizes returns while managing risk. Second, they should pay attention to the actual cash income their investments generate. The goal is always to maximize returns while keeping risk in check.

Can you elaborate on the benefits of Easterly's partnership with private real estate firm, Harrison Street, for retail and private wealth investors? What unique opportunities does this collaboration unlock?

We’re bringing a real estate product forward that has previously only been available to institutional investors, and we're putting it in a format that is relatively inexpensive. With Harrison Street, we’re able to provide institutional manager access to the retail and private wealth marketplace. In turn, we’re able to enable private wealth investors to access the service and expertise needed to manage these investments.

We’re very excited to bring Harrison Street forward to the private wealth market. In addition to its proven track record in alternative real assets, its investment strategy is designed to withstand, and even capitalize on, economic and interest rate volatility. We spoke earlier about how demographic underpinning is a critical driver of growth in real estate right now. With Harrison Street, we’re able to provide access to an investment strategy focused on demographic-driven, needs-based alternative real assets in sectors where needs are outpacing supply.

We believe this approach is highly attractive in today’s market and adds to the strength of our solutions that are carefully curated to make portfolios better.

Darrell is the Founder and Managing Principal at Easterly Asset Management, home to investment teams that provide institutional and private wealth investors with a portfolio of curated solutions across alternatives, active equity and active fixed income. Darrell also serves as the CEO of Easterly Government Properties, Inc., a NYSE-listed company which he co-founded in 2015.

Prior to founding Easterly, he served as the Chief Financial Officer of Affiliated Managers Group, Inc., a publicly traded asset management holding company which grew through acquisition. Darrell is also a Trustee Emeritus of Bates College, where he served for 18 years. Darrell earned his B.A. from Bates College and his M.B.A. from Columbia Business School.