Debt, equity, and innovation: How global capital influences future development

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MIT’s World Real Estate Forum was, as its name would suggest, an opportunity for a diverse set of investors from across the globe to come together to discuss debt, equity and innovation. While perspectives varied widely across the panel, which kicked off the two-day session, the following sentiments were echoed by the group:

  1. It is much harder to deploy capital than it is to source it
  2. Now, more than ever, obsolescence is a much larger risk factor for real estate

With growing contribution levels from pension funds, as well as an increase in cross-border investment, more and more investors are bidding on projects. But where to place that capital, while maximizing returns and taking appropriate levels of risk, is what keeps institutional managers up at night.

For Dennis Lopez, CEO of QuadReal, the tactic of ‘buying low and selling high’ is extremely challenging in today’s environment as economic volatility across the world has dramatically decreased. At the same time, he says it’s simply challenging enough to keep up with GDP growth (currently, a strong gauge for performance associated with core and core-plus assets).

These market challenges combined with rapid developments in innovation means we are forced to reshape the ways in which we think about traditional, high-performing real estate investments. Holding on to a core office asset in London or New York no longer meets the minimum requirements to futureproof.

As such, the panel discussed opportunities to shake things up by exploring new locations, asset types, and investment strategies.

Isabelle Scemama of AXA Investment Managers said they are dialing in on asset types like logistics and student & senior housing – those requiring a high degree of operation, but also providing strong cash flow and more diversity than the traditional office portfolio. Isabelle also spoke of AXA IM’s growing interest in development as part of their larger strategy, as a means to have greater control over the design and build-out of innovative and effective assets, and hedge the risk of obsolescence.

Looking ahead at innovative investment vehicles, Emmanuel Aidoo is running proof of concepts for blockchain with Credit Suisse. He describes the opportunities as large and untapped, but still mystical to most. Today, institutional managers look at blockchain (if at all!) as a means of reducing costs, but have yet to realize the opportunity to drive revenue generation. He sees the real opportunity in making profit where there are large inefficiencies across the industry.

All agreed that looking ahead is critical, and that simply meeting expectations of your clients today, won’t protect you from tomorrow.

Learn more about the many other exciting topics discussed at MIT’s recent World Real Estate Forum.