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<\/a>Melissa Reagen, Nuveen<\/p><\/div>\n
In a conversation with Commercial Property Executive<\/em>, Reagen discussed whether the industry has gleaned any hard truths from the past two years of a world mired in the COVID-19 pandemic, how “unloved sectors” are getting a boost, and why she\u2019s not that optimistic about the office market.<\/p>\n This interview has been edited and condensed for clarity.<\/em><\/p>\n You were in research roles for a long time prior to your most recent move. What has that change been like? <\/strong><\/p>\n It\u2019s been a nice change. You can certainly use all the research and data and analytics that you\u2019ve had over the years\u2014I was doing research for almost 15 years before I made the move\u2014so I\u2019ve been able to transfer that skill set really well. And then of course there\u2019s the portfolio management skill set which is a new one.<\/p>\n READ ALSO: Institutional Investors Eye Bigger CRE Allocations<\/a><\/p>\n So that\u2019s been fun to learn and build all of that up. I\u2019m running a fund that invests in self storage, single-family rentals and medical office. I had done a lot of research in those sectors prior to taking on the role so it\u2019s actually really exciting to be able to have the role and it\u2019s something that I feel very strongly about.<\/p>\n Looking back on the past two years of this strange pandemic, what do you think are some hard truths the real estate industry has learned? <\/strong><\/p>\n It\u2019s a good question. It\u2019s probably a little too early to tell because we\u2019ve probably got to come out of the pandemic. We probably always knew collaboration really mattered, and we know it matters even more now. Having had to work from home for so long took a toll on a lot of people.<\/p>\n The reality is that real estate has done really well in the pandemic. Green Street just released that values are up 9 percent prior to pre-COVID-19 levels, and so there\u2019s really no hard truths to learn when things are going well, right? It\u2019s hard to learn anything when everything\u2019s going up and to the right. And values have just done really well post-COVID.<\/p>\n People have been moving homes, so that\u2019s generating demand for single-family rentals and that\u2019s generating demand for self storage. Even some of the unloved sectors are getting a boost as all the tides rise. It will take a couple years for that to play out because I don\u2019t think you learn any hard truths until you have to go through something difficult.<\/p>\n What surprised you the most, looking at how the CRE industry has performed so far this year?<\/strong><\/p>\n When the virus first hit, back in March and April of 2020, at that point I was really worried that risk premiums were really going to kind of blow out, not just for real estate but all asset classes, and things looked really grim at that point. I was really worried there would be a real hit to demand across all sectors\u2014that consumers wouldn\u2019t be spending and that people wouldn\u2019t be going out and there\u2019d be a real hit to demand.<\/p>\n And of course, that never materialized. With all the fiscal stimulus that has now been pumped into the economy, it\u2019s going gangbusters. So I\u2019m surprised\u2014I mean, I\u2019m not surprised now that all the fiscal stimulus has been pumped in, but it looked really grim back in March of 2020 and 2021. And probably without the fiscal stimulus it would\u2019ve gotten really grim because no one was going out, no one was spending, no one was doing anything.<\/p>\n Alternative asset sectors have been attracting a lot of capital lately. How long do you think that trend will continue and why?<\/strong><\/p>\n All those alternative sectors have a really big tailwind behind them, from a fundamentals perspective and from investor demand, because the reality is that most real estate investors are still under-allocated to real estate alternatives and the majority of their book is still comprised of office, retail, industrial and multifamily. It\u2019s just how the industry grew up.<\/p>\n They\u2019re starting to wake up to the fact that they\u2019re underallocated to the alternatives and there\u2019s probably 20 alternative property types we could talk about. It\u2019s going to be a really long-term trend because it takes you a while to get to an allocation. If you\u2019re a major pension plan or even a large endowment, you can\u2019t just move things overnight, especially not in real estate, which is such an illiquid asset class. It\u2019s a very, very long-term trend.<\/p>\n I put together a pie chart last year around this time that basically showed the allocation to real estate alternatives in the next decade would move to 40 or 50 percent of an investor\u2019s portfolio. And there\u2019ll be more and more demand for it<\/a>. Part of the problem may just be the amount of stock that\u2019s available. There\u2019s not as much stock of something like life sciences or, say, a mall, but I also think new alternatives will come into view as we move through the next decade.<\/p>\n I\u2019ve heard less talk about the senior housing sector lately as one of those niche sectors attracting a lot of attention, but it\u2019s still one that has all the fundamentals going for it. Can we expect to see more investment and development in that industry?<\/strong><\/p>\n Historically, the industry\u2019s struggled with oversupply. That\u2019s always been the industry\u2019s problem\u2014it\u2019s always been building with not enough demand. That\u2019s going to change. We know, with the Baby Boomers aging, there\u2019s going to be a huge amount of demand. According to our analytics, there\u2019s going to be more demand than supply of senior housing starting in 2026. But I do think there\u2019s a void there, because if you were to go shop around a lot of the senior housing today, a lot of it is expensive for what you\u2019re getting, and what you\u2019re getting is older-quality stock that\u2019s just not good-quality stock.<\/p>\n With the next generation of what\u2019s going to be built, there\u2019s a real opportunity to create something that doesn\u2019t exist right now in senior housing. They need to realize the Baby Boomers are going to be the next generation moving into senior housing, and they are a lot more tech savvy than the Silent Generation that would have been in all the senior housing to date. They are a lot more tech savvy and a lot more active. For the next generation of senior housing, there\u2019s an opportunity to really capitalize on what Baby Boomers want and not build what we\u2019ve been building for the last 20 to 30 years.<\/p>\n What can share about Nuveen\u2019s investment strategy going forward? Where do you see the most opportunity? <\/strong><\/p>\n I still think these real estate alternatives will comprise a large portion of our portfolio. To the extent there is opportunity\u2014there\u2019s a lot of talk around the challenged assets, retail and office\u2014is there any opportunity once those sectors reprice? That\u2019s always on the table. That would be true of any sector that reprices.<\/p>\n We run a huge book of business. Our business in the U.S. is $103 billion. We invest across all property types\u2014industrial, multifamily, office, retail. The strategy is trying to find where the best relative value is, and that changes over time. For several years it was apartments, and that may change to single-family rentals. The strategy is always changing, based on where pricing is relative to fundamentals across each of those property types.<\/p>\n For now, the real estate alternative property types still offer really good value<\/a> just in terms of their forward returns relative to where they\u2019re pricing today, especially relative to the traditional property types. So there\u2019s a long runway in the real estate alternatives\u2014and there are 20 of them. So that\u2019s a broad statement, but in general it does hold.<\/p>\n
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