PERE NY: Working outside the four food groups

At the start of a session featuring three industry experts, a poll was conducted that revealed that 72 percent of the audience was interested in investing in niche sectors. With this growing attention to alternative real estate, the panelists at PERE’s New York Summit were faced with the question: are niche strategies worth the risk?

All three panelists explained that, with an appetite “outside the four food groups” of traditional real estate, they can find unique opportunities to deliver solid returns to their investors. Darrell Crate of Easterly Partners spoke to his experience of investing in US government facilities, Christopher Merrill of Harrison Street Real Estate Capital gave his perspective on the self-storage market and Al Rabil III of Kayne Anderson Real Estate Advisors illustrated the value of off-campus student housing investments. 

Crate, Merrill and Rabil all have had to quell investors’ fears of the perceived risks that come along with investing in niche sectors, such as the operational difficulties with student housing. Rabil noted that any alternative strategy Kayne Anderson pursues comes with “an albatross of risk,” but the increasing demand in those sectors makes the assets safer than they first appear. “In some cases, there’s much less risk because you can count on steady demand,” said Merrill. “It all goes back to perception.” 

“If you have a specialized team with specialized knowledge, the chance to outperform is out there,” said Crate. Additionally, working with government buildings takes operations out of the equation for Easterly. “There’s no other business that shuts down and keeps paying the rent,” he quipped of the US government.

“We’re really in the business of higher return and lower risk,” said Rabil, admitting investors do not hear that sentiment often. Rabil exited the panel commenting that the greatest lesson he has learned in his time at Kayne Anderson is the power of “knowing what you don’t know.”

October has seen the success of niche strategies through two big deals from Rabil and Merrill. Kayne Anderson broke into the senior housing market earlier this month, purchasing a $413 million portfolio with Discovery Management Group. Meanwhile, Harrison Street made headlines completing the largest self-storage portfolio sale to date, selling 43 properties for approximately $315 million.

Evidently, the strategies presented by Crate, Merrill and Rabil made an impact on the PERE New York audience. At the investor session on Thursday morning, both Lindsey Adams of the San Francisco Employees’ Retirement System and Kevin Dalmut of the University System of Maryland Foundation revealed they will be exploring niche properties further in 2014.