Blue Vault – Bowman Alts Week 2021 Kicks Off
March 9, 2021 | James Sprow | Blue Vault
Stacy Chitty, Managing Partner at Blue Vault, welcomed everyone to the second virtual Blue Vault – Bowman Summit, or Alts Week 2021. With five fully-packed days of presentations by asset managers and technology firms, the program will include panel discussions by industry leaders and opportunities for participants to submit questions to presenters during their presentations and afterward. Stacy explained how the 500+ registered participants can utilize the On24 interactive software to view presentation slides, presenter live video, Q & A windows, and other features of the On24 platform. Stacy also expressed his excitement about the long-awaited interactive database that Blue Vault will be making available to subscribers in the coming weeks, beginning with NTR data that can be searched, filtered, and “sliced and diced” by the Blue Vault subscribers to research all of the data collected by Blue Vault over the past eleven years.
Sealy & Company – Will Industrial Lead Us Out of the COVID Crisis?
The first presenters of the day were the team from Sealy & Company, a Dallas-based asset manager that focuses on the industrial sector, with emphasis on value-add opportunities in the distribution space. Josh McArtor, Managing Director in the Dallas office of Eastdil Secured, joined Scott P. Sealy, Sr. and Paul Barausky. Josh stated, “We’re very glad we’re in industrial.” He cited four factors that bode well for the economy generally and industrial specifically: 1) the health of balance sheets at both the corporate and individual levels; 2) inventory level increases that will absorb lots of space; 3) increases in e-commerce during the pandemic; and 4) on-shoring with more businesses adding to capacity. Scott pointed out that due to higher construction costs there may be a pause in supply but a big increase in demand in the latter half of 2021. Josh gave figures showing how a great increase in capital from multiple sources looking for opportunities in industrial. Scott pointed out where the firm is looking to invest, where demographics and job growth are strong, particularly in-fill and last-mile locations in the SE and SW U.S.
ExchangeRight’s DSTs Deliver Tax-Advantaged CRE Opportunities
Warren Thomas, Managing Partner at ExchangeRight, explained the factors to look for in DST programs and what to look out for. For example, many DSTs are actually paying from reserves and are not clear that their distributions are actually returns of capital. He emphasized that the underlying real estate is going to drive NOI and the ability to generate cash flows. DST real estate Alts have costs that vary widely and exit plans and strategies should take into account the upfront costs. DST “all-in” costs range from about 8.25% to highs of 16-22%. Warren quoted the Yale University endowment website about how endowment models are allocating 10-20% to real estate, while most advisors use more liquid stocks, bonds or mutual funds in retail investor portfolios. ExchangeRight’s DSTs offer multiple exit choices. Jeff Fluhardy, Director of National Accounts, pointed out that 98% of ExchangeRight’s portfolio properties have been deemed essential during the pandemic.
AIX Unlocks the Possibilities of Technology in the Alts Industry
Sara Murphy, Head of Platform Solutions, and Brad West, Chief Operating Officer, gave the presentation for AIX Alternative Investment Exchange. AIX is a digital platform built to improve the process for investing in alternatives and enable growth for the broader industry. The alternative investment business is a very complex business. The workflow can have an endless number of permutations and alternatives. The happy path is the straight line that connects these elements together. AIX’s solution addresses the full life-cycle of challenges and frictions associated with alternative investments. Their subscription services create a mutual-fund-like investing experience for advisors, making it easier to allocate to alternatives. Their account maintenance services enable advisors to digitally complete maintenance activities. Repurchasing services provide a new level of transparency and digital automation in support of tender and redemption requests.
Cottonwood Communities Explains Benefits of Merger
Adam Larson, CFO at Cottonwood Communities, gave a presentation that focused on the key considerations and potential shareholder benefits of the mergers of Cottonwood Communities with three other multifamily REITs. The combined portfolio on a pro forma basis will have 34 properties with a combined unit count of 7,155. The multifamily sector has generally outperformed other sectors with the least amount of volatility. Cottonwood’s tenants are renters by choice and their properties are located where there are strong demographics, sound job growth prospects, a resilient employment sector and supply constraints. Adam illustrated the impact on distributions for Cottonwood Multifamily REITs I and II, for which pro formas show an increase in distributions post merger.
Cerulli & Associates
Daniil Shapiro, Associate Director, Product Development at Cerulli & Associates, presented on the different investment vehicles in the alternatives universe, covering the spectrum of complexity, liquidity, and costs. He highlighted the tremendous growth in private equity, doubling in the last ten years. Private debt has never been as important as it is now with lower interest rates. With fewer public company listings, investors need diversification from the stock and bond markets. He emphasized the democratization of alternative investment products, providing them to a broader investment audience. Meanwhile, advisor allocations to alternative investments remain low. In 2020, advisors report allocating just 5.6% of assets to alternative investments. Cerulli sees interval funds to be attractive alternatives. When Blackstone came into the NTR sector several years ago they made the sector more attractive. Their offering increased liquidity and attractiveness and was followed by other large CRE managers like Oaktree, Nuveen, Starwood, and Cantor Fitzgerald.
Blackstone – Investing Beyond Public Markets
Kelly Klobuchar presented for Blackstone, with $620 billion in AUM, one of the largest alternative investment companies globally. Strikingly, Blackstone is the third-largest employer in the U.S. behind Walmart and Amazon. Blackstone is the largest private owner, operator, and financier of commercial real estate globally. She pointed out that only a handful of firms can write the large checks for acquisitions in the CRE sector that Blackstone can.
Kelly illustrated how household debt levels and debt service ratios remained at historically low levels through Q3 2020. Consumers are entering 2021 with over $3 trillion in available liquidity. She expects rapid growth in consumer spending and the U.S. is poised to see high GDP growth rates. In addition, inflation in advanced economies will face severe headwinds from aging demographics in the long run. In this regard, Japan serves as an example of demographic trends, as aging economies tend to have slower growth rates. The S&P trading at a 30.4 PE ratio is associated with lower future returns. Another risk for investors is the record low yields in bond markets. She sees investors taking on “return-free” risks and traditional stocks and bond investments will not deliver historical returns.
