Alternatives experts focus on efficiencies to offset low scale

Obtaining scale in alternative real estate segments such as self-storage may be difficult, but rewards are possible through a focus on the bottom line, panellists agreed during a recent panel hosted by Real Asset Media on Alternative Investment Opportunities.

“There are certain drivers to the self-storage market that make it really interesting,” according to Stephen Miles, Head of Strategic Capital Partnerships at Schroders Capital. “It’s not that easy to get in at scale, so creating efficiency is an interesting journey, but we’re working hard on that. We like anything that has a variable income that we can drive top line and control the costs on the bottom line.”

Based on their income fundamentals, alternative property segments are very attractive to core capital and institutional investors given that this type of income is very correlated to liability matching, Miles added. “Core capital doesn’t necessarily want to be the first mover in a market, and it may well be that you do need some of the private equity-style money coming in to start the ball rolling. But the market needs educating, and I think it’s up to the big managers and big institutions to bring that top-down institutional rigour to local market knowledge. That will feed into the ongoing education process and help investors realise that the risk is being managed in the right way.”

Schroders Capital is heavily invested in alternative real estate sectors with some €3 billion tied up in hotels alone, Miles said. “That dovetails into the increasing ‘hotelification’ of real estate and around the services that are provided through the alternative sectors. We operate and manage those hotels and that gives us a skill set that a lot of managers don’t have inhouse.”

Operational expertise is also vital in other alternatives segments such as senior housing and healthcare, agreed Ron van Bloois, Founder and CEO of Multiple Impact. Lack of benchmarking is likewise an issue, particularly for institutional investors, he added: “That’s why I set up the Senior Housing and Healthcare Association – we need to collect unbiassed data.”

That said, pension funds and insurance companies have an enormous appetite for this asset class, he said. “When you’re trying to create an investment portfolio with outperformance on social impact as well, this asset class ticks all the boxes.”

The same is true of carparks, according to Bas Magielse, Head of Parking and Mobility at Primevest Capital Partners. “And they generate very solid income returns throughout the cycles. We have experience with carpark investments since 2005 and they have been proving to be very crisis-proof investments, even during the Global Financial Crisis and the coronavirus pandemic. Of course, operators suffered then but they continued to pay their rents and we see trading is back again at the highest levels ever.”

The number of cars continues to grow in Europe, both in absolute and relative terms, he pointed out. “Urbanisation is also continuing, putting further pressure on inner city infrastructure. We strongly believe that multi-functional carparks with pick-up services and electric vehicle charging are facilitators that make the city more liveable.”

Primevest is seeking to obtain more scale in the carpark segment, also with a view to getting benchmarks in place, Magielse added. “There are none now, so we need to be very inventive and set up our own benchmarks through cooperation with our tenants and operators.”