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What niche asset classes should we be considering?

We are fund that has traditionally invested in hospitality. However, we keep hearing people talk about student housing, senior housing, data centers and last mile logistics. Should we be looking into some of these asset classes or are they a short term fad? Which of these asset classes would provide the best long-term play? Which niche asset class offers the highest ROI?

  • Kidder Mathews
    April 03, 2018

    I believe that depends on the location that hospitality is still a strong space at least the San Francisco bay area and resort land. While I can say that student housing and senior housing is a fad the deals are very limited and the sector of the market is thin. One should look seriously for Leased investments within the Silicon Valley where the demand is still outstripping the product which is available.

  • Greenberg Traurig, LLP
    April 03, 2018

    These are good business strategy questions. Since I am a real estate lawyer, I am not sure I am the best person to answer these but will make some observations based on my deep experience in the real estate industry for many years advising a broad spectrum of clients investing in different sectors. Hospitality has been an established real estate asset class for many years. Due to the short-term nature of hotel stays and lack of long term leases, it is generally subject to more volatility and rapid reaction to market forces than other asset classes, which can be both a good and a bad thing. Barriers to entry are a key to long-term success in this sector which has led many to believe that first class hotels in central business districts are more stable than suburban hotels as they are harder to quickly replicate and provide additional supply that will adversely affect occupancy levels and ADRs. The emergence of these newer niche investment classes is a response to various economic, demographic and technological developments and forces. Many investors believe that these new areas are here to stay and I agree. The decline of traditional retail is the result of changed purchasing patterns, especially by millennials, and the general surge in online shopping, the so called “Amazon effect”. The result is a tremendous demand for warehouse, distribution and last mile facilities. At the moment, in the right locations and markets, these types of facilities are in short supply in the face of increasing demand, creating a surge in prices and flurry of activity to produce more. Eventually, though it will take time, supply should begin to catch up with demand and these new patterns, but the need should be an enduring one. Though it might be a bit late and the pursuit of this line of investing requires a great deal of expertise and market knowledge, this sector should be here to stay. Other sectors considered niche ones have similar characteristics led by secular, demographic, economic and other factors. The aging of the baby boom generation will create a shortage in supply of assisted and senior living facilities in many US markets over the next 10-20 years. However, these require more than just real estate expertise if they implicate healthcare and regulatory issues, so should be pursued with the right team to ensure all bases are covered. Medical offices is another growing niche sector prompted by major changes in the medical industry but, again, knowledge of that industry and regulatory compliance is essential to success. Student housing can be a worthwhile sector as there is a shortage of supply in some locations, but great care needs to be taken in finding the right colleges and right markets with appropriate underwriting, which is sometimes challenging. The demographics do not support continued growth in demand for student housing, though in many places there is still a shortage in supply. I hope this is helpful, but think any of these classes requires very deep market and industry knowledge and research and a great deal of conviction.

  • Farazad Investments
    April 02, 2018

    I prefer hospitality; however, as you rightly indicated, other forms of asset classes such as senior care, data centers and student accommodations are definitely on the rise across Europe and North America. They are considered to be a long-term play and with the right operator, you cannot loose. The yields are healthy and the operational costs for student housing is less than hospitality investments. In my opinion, it all depends on your investment appetite, length of investment and, most importantly, the economics.