Why we think the coronavirus crisis has demonstrated the benefits of real estate company investing.

Today’s CIO Weekly Perspectives comes from guest contributor Matthew Kaplan.

Real estate is not like other businesses.

Unlike in most industries, the majority of real estate businesses grow building-by-building or portfolio-by-portfolio, with an operating company putting each new set of assets into a separate, independently capitalized limited partnership. Imagine a bank or an auto manufacturer setting up and capitalizing a separate company with every new branch or factory.

At Almanac, Neuberger Berman’s company-level real estate investment team, we specialize in providing know-how and capital to help real estate operators move away from this model and into integrated operating companies, which we regard as a superior format for property investing.

We’ve seen a steady increase in real estate operators looking to partner with us during our nearly 25-year track record, and the growth in our business has only strengthened over the past year in spite of the COVID-19 pandemic.

A lot of U.S. real estate is still owned and operated by entrepreneurial teams that live and breathe bricks and mortar, some of whom have grown businesses successfully for three or four decades without any strategic partners. The pandemic has accentuated to these successful entrepreneurs the benefits of our investment approach.


For an industry used to a cash-generative business in which trends and cycles play out over years, the sudden impact of the coronavirus lockdowns has been a shock. Many tenant businesses were closed for several months.

That pushes the issue of how efficiently one can access capital and liquidity right to the top of the real estate agenda—and puts the idea of a company balance sheet in an ever more attractive light.

First, let’s look at this defensively.

If a business recycles property sales proceeds and rental income through an integrated company’s balance sheet, rather than having constantly to dissolve old partnerships and open new ones, it is much easier to make dynamic decisions about how to allocate capital. One can invest in new assets or in the resilience of the company itself, or reserve a cash buffer. It is also simpler to secure credit lines against a diverse, fungible portfolio of assets than it is to raise additional capital partnership-by-partnership.

But there are also advantages for those thinking about offense.

If we anticipate a flood of value opportunities coming from the current environment, ready access to capital by our portfolio companies removes the need to capitalize investments building-by-building, enabling one to move quickly, and possibly secure more favorable prices, rates and other terms.

Ownership and Control

We believe these dynamics are accelerating a longer-term trend toward integrated real estate operating companies.

The model has now demonstrated its advantages over three decades, especially in a number of property sectors that have already started to consolidate. In addition, a large cohort of real estate leaders who came of age in the 1980s and ’90s are beginning to pass their businesses to younger family members, creating a strong tax incentive to recapitalize them in a structure that enhances efficiency while allowing them to retain some ownership and control.

We think this combination of long- and short-term forces puts the U.S. real estate industry on the brink of widespread recognition that integrated operating companies provide the best model for investment. In our view, that makes for a truly exciting time to be the providers of the capital and skills required to create these new companies.

Over the coming months, you are sure to hear a lot about how 2020 has overturned expectations for real estate sectors, from city-center offices to cellphone towers. You may hear less about how the COVID-19 pandemic has accelerated the trend of real estate being owned in fully integrated operating companies. We believe this long-term change in how real estate is structured and capitalized can continue to create investment opportunities in the years ahead. Almanac is excited to put its 25 years of knowledge to work in this opportune investment environment.

In Case You Missed It

  • Japan 3Q 2020 GDP (Final): +22.9% quarter-over-quarter annualized
  • Eurozone 3Q 2020 GDP (Final): +12.5% quarter-over-quarter
  • European Central Bank Policy Meeting: The Governing Council made no changes to its policy stance
  • U.S. Consumer Price Index: +0.2% in November month-over-month and +1.2% year-over-year (core CPI increased 0.2% month-over-month and 1.6% year-over-year)
  • U.S. Initial Jobless Claims: +853,000 for the week ending December 5
  • U.S. Producer Price Index: +0.1% in November month-over-month and +0.8% year-over-year

What to Watch For

  • Tuesday, December 15:
    • Japan Purchasing Managers’ Index
  • Wednesday, December 16:
    • Eurozone Purchasing Managers’ Index
    • U.S. Retail Sales
    • NAHB Housing Market Index
    • Federal Open Market Committee Meeting
  • Thursday, December 17:
    • U.S. Housing Starts and Building Permits
    • U.S. Initial Jobless Claims
    • Japan Consumer Price Index
    • Bank of Japan Policy Rate Decision

– Andrew White, Investment Strategy Group

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