This article was sponsored by MIRA Real Estate. It appeared in the Global Investor 50 special section alongside the November issue of PERE magazine.
Since the global financial crisis, we have been in the age of the mega-investor, with the GI 50 players growing in size, sophistication and dominance. Brett Robson, head of real estate at Macquarie Infrastructure and Real Assets (MIRA) talks to PERE about how the business has adapted to the needs of the world’s largest pension and sovereign wealth funds and created a series of platforms, each plugging into long-term global macroeconomic trends, in order to help satisfy institutions’ appetite for real estate.
Q. What are the major changes which have impacted and changed the shape of global private real estate investment in recent years?
There has been continued growth in the scale and sophistication of bigger investors, in particular. With that, we have seen an increase in the size and complexity of deals, as well as interest in new sectors and cross-border investment. Most investors are growing and need to deploy, rather than actively recycle, capital. Many of these larger investors remain underweight in real estate, so we expect their desire to increase exposure to the sector will continue.
At the same time, we have also seen big structural trends, including demographic change, driving much of the demand for real estate.
This includes growing and aging populations, as well as generational differences – particularly around the rise of the millennials and ageing baby boomers. Urbanization, especially in growth economies, is powering huge demand for real estate, while technology is changing the way we live, work and play.
This combination of long-term structural changes and larger, more sophisticated investors has led to more investment in real estate looking through cycles.
Q. How has MIRA Real Estate evolved to align with these changes and to stay competitive?
We have focused on those structural and macroeconomic trends, creating opportunities within themes where we have strong conviction – beds, sheds, bytes and desks.
With the intention to better service our institutional clients, we recently brought all of Macquarie’s investor-facing real estate activities together within MIRA. We had always made balance sheet investments to support our partners, but we have now integrated this with our advisory and fund management teams to provide our clients with a broader suite of solutions.
Most of our platform investments focus on the creation of real estate assets. We are big believers in a fully integrated model, with the ability to develop and manage assets. However, we have also acquired and assembled portfolios. The end game in all of this has been to offer our partners a better entry point into real estate opportunities.
The mega-trends I talked about have given rise to new sectors and large, sophisticated global investors have tended to lead the way into these spaces, as they have the resources to ‘skill up’ on a new sector and actively partner with operators. That active partnership is definitely something we have been big supporters of.
Q. Can you outline some the investments you have made and capital you have led into new markets and sectors?
MIRA Real Estate has invested across eight platforms linked to the mega-trends we are following. We partner with operators that have very strong real estate skills – helping to grow businesses from an early stage when they need a lot more hands-on support, particularly around governance and institutional rigor in investment underwriting. This means we are really scaling and institutionalizing these businesses, to the point where they become leading specialist operators, like LOGOS – an Asia-Pacific logistics platform where we introduced Ivanhoé Cambridge as a partner.
Logistics is probably the sector we are best known for. It has been a conviction of ours for a number of years and will be in the future too. We backed Goodman Group’s global growth and expansion in Asia, which then grew to a scale that did not really require our ongoing input. We re-entered the sector globally by forming and supporting new platforms, such as LOGOS, Peel Logistics Property in the UK and Logistics Property Company in North America. At the moment we are spending a fair bit of time looking for the right opportunities to build and grow a logistics platform in Europe, which we think is an attractive market.
Rental housing is also a major conviction of ours, with demand being driven by urbanization and changing lifestyles. We have formed a platform with Greystar, a sector specialist, to develop rental housing in China, Australia and Japan. We are also looking independently at opportunities in Europe.
Also on the housing side, we partnered with RHP, a US manufactured housing specialist, to build up a portfolio of assets. We acquired fairly small portfolios which were under the radar of the bigger investors in that sector. Adding professional management and building scale produced an opportunity for our partners to participate in.
Last year, we also acquired a specialist real estate fund manager, GLL Real Estate Partners, that focuses on identifying relative value across regional markets. It has a strong client base of German, South Korean and Spanish capital and manages around €7 billion of assets across Europe and the Americas.
Q. The GI 50 ranking has remained remarkably stable, particularly in the last two years. What does this tell us about the investor market?
That is part of a broader global trend and applies to managers as much as to investors. The bigger players are continuing to grow and not only maintaining their ranking, but also actually having a bigger share of the overall market as well. That means they can apply more resources to deals and get involved with much larger transactions. They have the ability to allocate more capital and so their growth cycle continues.
We expect that we are only going to see more growth and more large investors in the market. For example, Australia is a major source of pension capital, but historically individual funds have been small. Now, there is a trend toward consolidation in Australia, leading to fewer but larger funds, and funds becoming players on the world stage. Elsewhere, smaller investors are grouping together by backing multi-managers, giving them the scale to behave like a larger player and invest in a more sophisticated fashion.
Q. How do you see the real estate investment market evolving over the next few years?
One thing we know for sure is that there will be cycles. The thing we do not know is exactly when they will occur and at what amplitude.
That suggests you need to invest in sectors and markets that are underpinned by structural drivers and tailwinds. It is these sectors that should, over the long-term, enjoy greater demand and continued growth.
For example, logistics is a sector where we have been active for 15-20 years. Throughout that time, there has been an evolving structural need for more modern logistics space, and we believe the same will apply into the future.