February 2021

Real Estate Jumps to Life Science, Rental Homes, E-commerce | FundFire

By Tom Stabile | February 10, 2021

The private real estate fund market endured a tough 2020, with fundraising totals down 34% and major sectors such as office and retail facing pressure during the pandemic downturn. But the market also saw strong new investment areas taking shape as managers and investors flocked to strategies and deals focused on life science, single-family home rental, and e-commerce industrial properties.

The shifting sands may end up strengthening a market that already is set for a rebound, says Ryan Williams, CEO at Cadre, a real estate manager and technology platform.

“I think we’re going to see a ton of capital raised in this space,” he says. “2020 was a defensive-oriented year, with [investors] having more of a wait-and-see approach… But in 2021, deployment will start increasing and we’ll also see capital raising, and an overflow from people on the sidelines in 2020.”

Such a rebound would come after fundraising plummeted in 2020 to $118 billion from 283 funds that closed, down 34% from the 2019 peak of $179 billion across 494 funds, and the lowest level since 2013, according to data in Preqin’s 2021 real estate market report. Only two vehicles raised more than $5 billion in assets last year, both from Blackstone Group, which closed its latest European fund at $10.6 billion and a real estate debt strategy at $8 billion, according to Preqin.

The market stalled early during the pandemic like most other asset classes, and then saw an uneven recovery, with classic sectors such as office, retail, and even multi-family real estate struggle, says Carly Tripp, global CIO for real estate at Nuveen.

“There were winners and losers,” she says. “You especially saw alternative sectors such as life sciences, storage, single-family rentals, medical offices drive the demand.”

Some investors are still holding back as the pandemic recovery continues, in part because they can’t do site visits or meet with appraisers amid the lockdowns, leaving a lot of pent-up demand, says Prashant Tewari, partner at Aon’s Townsend Group affiliate. When the market finally returns, many of the newer investment areas could attract capital, Tewari adds.

“People will continue to invest more dollars through non-core capital pools,” he says. “We’re seeing that trend taking off and it will continue over the next several years.”

Life Sciences

The life sciences real estate segment is riding a wave of interest as demand grows for lab space, offices, and research institutions, many of them involving adaptive reuse or other retrofit projects, Williams says.

“There’s definitely more and more capital chasing this market,” he says. “There could be a ton of compelling opportunities.”

Investors are interested in almost anything related to healthcare, including life sciences, medical offices, and even senior housing, Tripp says. “There was more demand, and I would expect that to continue,” she says.

The push for COVID-19 vaccine development also contributed, with surges in demand for life sciences offices in cities such as Boston and Pittsburgh, according to a recent CBRE report, which found that vacancy rates for lab space were near all-time lows last summer of 6.1% in the 13 largest markets domestically.

New joint ventures are targeting the market, including Tishman Speyer and Bellco Capital joining forces last fall on a new $1 billion life sciences and biotechnology property fund. And capital is flowing to the segment, with Blackstone last fall raising more than $8 billion for a new permanent capital vehicle that helped it keep control of BioMed Realty, the largest private landlord for life sciences and technology space globally.

Single-Family Rental Housing

The past year put a spotlight on investment themes that were already bubbling, but then took off even faster as a result of the COVID-19 crisis, with single-family house rentals a prime example, Tewari says. Millennials needing space and not finding enough multi-family apartment inventory and Baby Boomers moving to new locales were already contributing to the trend, which got a boost as the pandemic sparked an exodus out of some cities, he says.

Single-family housing has strong tailwinds behind it to drive future growth, says Antonio Casal, managing director and head of research at Tiedemann Advisors, a wealth manager that invests in private alts strategies. Those include the underproduction of single-family housing since the 2008 financial crisis, which has created a supply imbalance; the big shift to remote working amid the pandemic that has shown employees can work from greater distances, including states with lower costs of living and lower taxes; and the rise of institutional players that can find efficiencies in the market, he says.
“Institutionally managed rental houses make up a small portion of the marketplace… in the single digits,” he adds.

The market may have extensive growth ahead from such players, Tripp says.

“We’ll look back in 10 to 15 years and see that today we’re at the early stages,” she says. “More institutional investors are leveraging the knowledge base and the technology to manage single family rental properties at scale more efficiently.”

Among the latest partnerships in the market is Canada’s Public Sector Pension Investment Board teaming up last month with Pretium, a specialist manager, to invest $700 million into single-family rental properties across the Southeast and Southwest.


The big shift to e-commerce and home delivery last year during the pandemic was a clear driver of the increased investment interest in warehouses and logistics properties, a trend that was already active, Tripp says. Demand for data centers and other digital commercial properties will continue pushing the market forward, she says.

The home delivery trend also expanded last year, as consumers embraced not only e-commerce for household goods but also for fresh food, Tewari says. “Now we’re seeing delivery logistics redrawn for food,” he says. “Cold storage is going to be an area of high growth.”

ElmTree Funds and Guggenheim Investments last month added their heft to the market with a $600 million strategic partnership to invest in industrial e-commerce assets nationally.

Indeed, the e-commerce market is shaping up as a national trend, Williams says.

“The opportunties will be in markets with access to highways and strong labor forces, in gateway markets but also other hubs,” he says. “There will be significant growth in the space.”


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