The role of listed infrastructure

Jeremy AnagnosJeremy Anagnos has more than 20 years of investment management experience. He is a managing director and a senior global portfolio manager with CBRE Clarion Securities. Prior to joining CBRE Clarion Securities in 2011, he served as co-CIO of CBRE Global Investors’ securities team responsible for portfolio management of global real estate securities separate accounts and funds. During his career, Anagnos has worked in various management and research positions in the real estate securities industry with LaSalle Investment Management and Deutsche Bank. Anagnos, who will be speaking at IREI’s upcoming Infrastructure Strategies conference, recently spoke with IREI’s John Hunt about infrastructure securities.

Real estate shares many commonalities with infrastructure. Studies have shown that listed real estate is a proxy for direct real estate over the long term. Can the same case be made for the relationship between listed and direct infrastructure?

The listed real estate market has become a more mature asset class, with broad acceptance across investor groups of its merits as a proxy for the real estate asset class. Both the listed and direct real estate market have well-regarded and well-defined indices that enable investors to analyze historical data and arrive at the conclusion regarding the profile of returns and their long-term similarity. Infrastructure is still a relatively new asset class that lacks readily accessible data, and in many cases is not consistently defined. However, we have done an analysis of the available data and made assumptions about the infrastructure market and have found that indeed listed infrastructure offers similar returns to direct infrastructure over long-term periods. When investors consider the holding period of their investment, which for infrastructure is typically greater than five to seven years, then listed infrastructure is a very good alternative.

What role should listed infrastructure play in an institutional allocation to the asset class?

Again, we see many similarities to real estate in how listed real estate was initially introduced into allocations over 15 years ago. Investors added listed real estate as a complement to their direct real estate allocation to improve liquidity, increase or decrease tactical allocations, or to gain access to sectors dominated by the listed sector — all of which apply to listed infrastructure. We also see some investors with less resources and familiarity with the direct infrastructure market seeking out listed infrastructure as a way to gain exposure and learn more about the market.

Unique to listed infrastructure that we did not see in real estate is that some investors are choosing listed infrastructure due to the incredibly competitive environment to bid for infrastructure assets, leading to long queues to enter established funds or excessive periods of investment for new funds. Infrastructure is not as liquid a transaction market as real estate, but in a listed market of over $3 trillion of equity there is always an ability to place capital into income-producing, core infrastructure assets.

Listed infrastructure has performed well the past few years, posting approximately 9 percent compounded annual returns since 2010. In light of this strong performance, has valuation become stretched?

We believe that investors are wary of valuations for two reasons: fear of rising interest rates and high prices being paid for direct infrastructure assets.

We all know that interest rates have declined around the globe the past few years. We can see that the EV/EBTIDA multiples have risen, and investors have been willing to pay a higher multiple for assets given lower interest rate costs. However, we would highlight that debt ratios for listed infrastructure companies are not high — around 30 percent debt/EV — so they are not aggressively fueling their earnings with debt. In addition, we would note that we forecast fairly consistent earnings and dividend growth of 6 percent to 8 percent during the next two years, in line with the past few years.

Second, institutional investors appear concerned about the aggressive bidding for core infrastructure assets leading to ever decreasing leveraged IRRs, at record low interest rate levels. Our analysis suggests the assets of listed infrastructure companies are valued more than 20 percent less than what the private market is paying. Given that the leverage of the listed market is roughly half of that used in the direct market, we feel there is a compelling valuation story in listed infrastructure.

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JohnHunt91x119John Hunt is conference program manager of Institutional Real Estate, Inc.

NCREIF offers certificate program

Industry professionals know that being the best takes continuous learning. The institutional real estate industry, though, has limited opportunities for continuing education.

This summer, NCREIF has partnered with the MIT Center for Real Estate to provide industry professionals with exactly that opportunity. Together, they are offering a summer Professional Certificate Program in Institutional Real Estate Investment.

“We plan to phase in the program with three of the courses offered this June during the week of June 8. This will include the introductory course that is intended as a prerequisite to the other courses,” says Jeff Fisher, academic consultant for NCREIF. All courses are two full days, there are six courses required to complete the certificate program, and they must be completed within five years.

Fisher says the program will be great for anyone who is involved with the institutional investment community in any way — plan sponsors, investment managers, consultants, accountants, appraisers and data vendors.

“There are no other organizations that I am aware of that provide courses that cover these topics with an application to private real estate investments,” adds Fisher. While some of the program’s topics are touched on in CFA curriculums and MBA programs, he says there is no other program that will cover these topics to the degree they will be covered through the NCREIF/MIT program.

Fisher also notes that all of the instructors have extensive experience in the institutional real estate business. “They can draw upon their experience in the industry to make the course applicable to students,” he says.

The program will be held on MIT’s campus in Cambridge, Mass., and will feature globally renowned instructors from both MIT and NCREIF’s member organizations. A full list of course descriptions is available on the NCREIF website.

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ZoeWolff119x91Zoë Wolff is a reporter with Institutional Real Estate, Inc.

Mad Mania: I’d like to teach the world to fund

Much has been written about the final episode of the groundbreaking show Mad Men and what it really means, what it’s supposed to mean, and the meaning behind the meaning. It brings up a great deal of conjecture, which is the indication of a show that was both well written and thought provoking.

It is hard to believe that the show first aired July 17, 2007, a full year before the bubble burst in the global economy. During those heady days, how many of you had ever heard of a “credit default swap”? And if you had heard of one, how many of you actually knew what one was? Not many, I’m assuming.

So many reviews and articles written about Mad Men center around the evolution of the main characters and how they changed and grew over the 10 years covered during the series timeline.

One interesting way to look at the beginning of Mad Men and how it relates to our industry is to see the evolution of the show’s ad agency, Sterling Cooper, which grew into Sterling Cooper Draper Pryce and then Sterling Cooper & Partners, then eventually going public and being acquired by McCann, one of the largest advertising agencies in country.

Much like Sterling Cooper, emerging managers begin to form during “recoveries” or economic upswings. Although 1960 is now a long time ago, there was a very sharp global recession in 1958, which lasted only about a year. Much of the recovery was due to government action, including monetary policies that kept the recession short lived. However, there was plenty of pain to go around in the late 1950s. Although the recession of 1958 was not as deep as that of 2008, the show did a good job of illustrating the trajectory of a business after an economic downturn.

The economic recovery of the past couple years has seen a number of new firms emerge, as managers strike out on their own, as well as consolidation, as a number of firms have been acquired in big mergers.

In essence, much like the path that people take in their lives, there are also paths that businesses take as well. And Mad Men illustrated this very well.

Even though it was time to end, I, for one, will miss that show.

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Jonathan_Schein-NEWJonathan Schein is senior vice president and managing director of business development.

Park the car

Investors need to consider all kinds of things when making property investment decisions, but when was the last time you thought about the need for — and ability to — park your car … in Australia? Probably not recently.

However, Colliers International and Parking & Traffic Consultants have done just this in a new white paper, The Evolution of Car Parking.

With limited parking spaces available in Australia’s hot central business districts, prices for car parks, or garages, have soared. Efforts by city councils to reduce the overall number of parking spaces for real estate development, along with fewer parking bays being developed in new CBD office and residential buildings, adds to the high demand. So, too, do a growing workforce, increasing CBD residential population and renewed vigor in retailing, notes the white paper.

Globally speaking, Sydney has one of the lowest CBD parking spaces to employee ratios, with only 12.2 spaces available to every 100 workers. The city’s CBD also has one of the highest nondiscounted median daily parking rates at A$70.85 ($57.15).

So get out your walking shoes, or take public transportation, the next time you’re in the land of Oz. Otherwise, the supply/demand imbalance for this alternative asset class may make you less than appreciative as you drive in circles looking for a place to park.

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Jennifer-Molloy91x119Jennifer Molloy is editor of The Institutional Real Estate Letter – Asia Pacific.

Back to work

The latest jobs report from the Bureau of Labor Statistics showed 223,000 jobs added in April and an unemployment rate of 5.4 percent — a much better piece of news than March’s employment situation report (revised downward from 126,000 jobs to 85,000 jobs).

The solid April numbers should be comforting for real estate investors, establishing that March’s weak numbers (following on 266,000 jobs added in February) are likely the result of bad winter weather and not a change in the upward employment trend.

The sectors with the most job gains were professional and business services (62,000 jobs), healthcare (45,000 jobs), and construction (45,000 jobs). With many markets at new employment peaks — especially markets with strong exposure to high-tech and healthcare — new commercial real estate development is going to be needed, though rents will have to rise to levels to support that new construction.

A round-up of economists’ reactions to the jobs numbers shows a positive reaction to the totals, along with expectations that this will smooth the way for a hike in interest rates later in the year.

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LorettawebfinalLoretta Clodfelter is editor of The Institutional Real Estate Letter – Americas.

Getting down in downtown Des Moines

Des Moines, Iowa, skylineIt is that time again in Des Moines, Iowa. Every four years, a horde of politicians pining to become the next President of the United States descend on the city and pretend to be people they are not, and make promises they cannot possibly keep. Trailing them is an even larger horde of media reporters from around the world.

Yes, every presidential election cycle is Des Moines’s season in the sun.

Meanwhile, those among us who think in terms of primary and secondary cities see Des Moines’s intermittent elevation into the national spotlight as a bit of an oddity. It is a tertiary city, after all, and what serious real estate investor is going to dawdle in such a diminutive locale?

True enough for most institutional players, but there are real estate investors of a lesser god who find the getting is very good in plenty of tertiary cities, Des Moines among them. And it turns out the capital of Iowa has an outsized story to tell.

“We do have a resurgence happening here,” says Amy Baker of the Greater Des Moines Partnership. “We are seeing an economic development boom in commercial, residential, hospitality and public spaces.”

The cost of doing business in Des Moines is 17 percent lower than the national average, and the cost of living is also modest. That helps explain why the downtown has almost 50 projects currently in progress valued at more than $800 million. One of those is the first phase of Principal Financial Group’s massive renovation of its sprawling headquarters campus in downtown. Phase one alone is a $284 million undertaking, though the full renovation will total $400 million. This project map published by The Business Record nicely illustrates the extensiveness of the city’s development boom.

Aiming to fuel the long-term prospects of the city is the Des Moines Redevelopment Co., a non-profit entity formed to acquire land and buildings targeted for redevelopment in the city’s downtown area. Some 22 business organizations comprise the DMRC, which was conceived to give city leaders a tool that gives them the power to act quickly in taking advantage of development opportunities that meet city planners’ vision for the area’s economic development.

Also planting seeds for the future is an initiative dubbed the Global Insurance Accelerator, launched in February and modeled after the successful Techstars program. Its goal is to help grow insurance-based technology startups. Winning business concepts are given seed funding, space, and access to mentors and advisers.

Though land-locked, city business leaders have aspirations that reside oceans away, which is why the formation of the Greater Des Moines Export Plan has become yet another component in the region’s business agenda. Its objective is to increase both the number of identified exporters and number of export markets by 10 percent during the next five years, increasing each by 45 and 19, respectively.

Not too shabby for a tertiary market.

Des Moines has long played an outsized role in presidential politics. It might also do the same economically if its regional development campaigns prove to have winning strategies.

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MikeCfinalwebMike Consol is editor of Real Assets Adviser.

Happy Mother’s Day

A mother is expected to be many things: loving, kind, self-sacrificing, giving, cherished, comforting, inspiring providing guidance, strong and nurturing, amongst many other amazing things.

When I was a child, my father would help my brother and I buy flowers, cards and many different gifts for my mom on Mother’s Day. The most cherished of those gifts were all made by hand (i.e., cards, letters, picture collages), but, as an adult, what should one give now that making something by hand seems a bit too juvenile?

According to the National Retail Federation, families this year are ready to splurge on jewelry, flowers, gift cards, brunch and apparel. NRF did a 2015 Mother’s Day Spending Survey, conducted by Prosper Insights & Analytics, and found that Americans will spend an average of $172.63 on Mother’s Day gifts this year, up approximately $10 from the previous year and the highest amount in the survey’s 12-year history. Total spending is expected to reach $21.2 billion.

As far as popular gifts for mom go, according to IBISWorld, Mother’s Day spending on consumer electronics (smart phones and tablets) has outpaced growth in spending on every other gift category and is expected to grow by 1 percent this year to $1.8 billion.

Spending on special dinners and brunches is estimated to grow at the second-highest annualized rate of 10.1 percent, while jewelry is estimated to grow at the third-highest annualized rate of 8.7 percent. Spending on these two product categories is expected to account for 19.2 percent and 18.5 percent of total Mother’s Day spending in 2015, respectively. Among the retail establishments set to benefit from rising Mother’s Day spending, specialty stores and department stores lead the pack. In 2014, these two industries accounted for 33.5 percent and 32.4 percent of total Mother’s Day sales, respectively. Specialty stores include florists, jewelry stores, greeting card stores and other retail establishments selling niche products. Spending on flowers is also predicted to increase the most, by 4.2 percent, in 2015. Overall, the share of sales generated by specialty stores is expected to increase this year.

IBIS World Mother's Day chart

Source: IBISWorld

So the retail sector should be expecting a nice increase in revenue this Mother’s Day, but what should you give your mother?

According to Fox31 Denver:

  • Do some housework, but don’t give her products that remind her of everyday chores
  • Do tap the technology to find savings on gifts
  • Don’t spend money if you’re in debt or your budget doesn’t allow for it
  • Don’t buy flowers online the week of Mother’s Day
  • Don’t give mom too techie of gifts if she’s not tech savvy

Happy Mother’s Day to all the moms out there!

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DenisewebfinalDenise DeChaine is special projects editor and video production editor at Institutional Real Estate, Inc.