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Why QuadReal bought into a listed REIT specialist

The investment arm of BCI has acquired a 46% stake in Ranger Global, expanding its exposure into all four quadrants of the real estate market.

QuadReal, the real estate investment arm of the British Columbia Investment Management Corporation, formed a strategic partnership with Ranger Global, a New York-headquartered listed real estate specialist, to build out its public equity and debt investment exposures in real estate.

It is the first time the Vancouver-based investment manager, which manages C$61.2 billion ($49 billion; €43.2 billion) in assets, has entered the listed real estate space. The manager previously focused on its private equity and debt operations, which it grew organically. The move fulfills QuadReal’s mission to invest in all four quadrants of the real estate capital markets space, Dennis Lopez, CEO, told PERE.

“The last element [in our portfolio strategy] was the public side,” Lopez said. “The volatility introduced by the pandemic was frankly the perfect time to launch things.”

QuadReal, the real estate investment arm of the British Columbia Investment Management Corporation, has taken a 46 percent stake in Ranger as part of the agreement. The minority stake allows Ranger co-founders Andrew Duffy and Scott Tuck to maintain control of the company they started in 2009, something they had wanted to do since looking for a partner.

Nonetheless, Lopez said QuadReal liked the structure as it maintained the alignment of interest it looks for in investors, incentivizing Ranger to want to succeed alongside its investors. QuadReal invested $1 billion in Ranger’s strategies during the pandemic, with the outperformance of the investment a key driver in forming the partnership at the end of 2021.

During the pandemic, QuadReal saw a dislocation in pricing, to which the public markets allowed a quicker entry and a more flexible exit. The partnership offered strong alignment between QuadReal and Ranger, and the proven track record the two parties established over the past couple of years helped seal the new ownership structure.

Ranger will continue to operate a global strategy. Its net returns across the past one-, three-, five-, seven, and 10-year periods as well as since-inception (2009) returns have outperformed the NAREIT index. Its five-year, 10-year and since inception returns of 10.92 percent, 12.55 percent and 11.47 percent, respectively, have ranked either first or second on the eVestment Global REIT Universe also.

One reason Ranger had success before and during the pandemic is its strategic focus on the alternative sector. REITs continue to be a strong way to access niche property types, with only around 5 percent of the private universe currently allocated to property types like self-storage, cold-storage, manufactured housing, cell towers, data centers, film studios and life sciences. Ranger has typically had an up to 4x overweighting to specialty sectors, Tuck told PERE.

“You can’t own a fully differentiated specialty private investment portfolio,” Tuck said. “With the public markets, you can have a more enhanced portfolio.”

“There’s a real value deploying capital into the public and private markets,” Lopez added. “It opens more opportunities for us to take advantage of dislocations and certain geographic areas of the world.”

Hodes Weill & Associates, the real estate advisory firm, was the adviser to QuadReal on the transaction. David Hodes, Hodes Weill’s founder and co-managing partner, confirmed QuadReal’s desire for alternative property types, adding the structure of the investment aids both parties.

Despite QuadReal’s ownership, Ranger will continue to raise capital from other investors. It also speaks to a larger trend of investors looking at listed real estate securities differently due to the pandemic’s effects on that side of the market. Before covid-19, investors were moving away from securities, with capital shifting allocations to real estate, Hodes said. The repricing and volatility experienced across both the private and public sector meant someone was going to capitalize and, in this case, Ranger may have bet right.

“Ranger has had extraordinary performance. In hindsight, the market has caught up to what they have been doing,” Hodes said. “Investors are pursuing some less traditional asset classes and increasing exposure to ‘New Economy’ types. As the Canadians say, Ranger have been good at anticipating where the puck is going.”