This interview was conducted by Emma Nilsson – Zinqular Group Director of Media & Communications.
Michael Yaw Appiah – the Co-CEO of Zinqular Group Investment Partners paid a visit to our Stockholm offices and was extremely generous with his time to have this interview. This interview among other discussions focuses on Zinqular’s growing portfolio in real estate assets; current & future state of investing in real estate – identifying great real estate trends.
Here is a short transcript of the interview:
Emma: Zinqular is making sizable investments in real estate, and it’s growing part of your investment portfolio today. How do you do it – What are your simple guidelines for recognizing great real estate opportunities?
Michael: Our experience is that real estate investments are not a difficult business – in fact, its straightforward and hidden in plain sight. We have some couple of guidelines:
- We see ourselves as a thematic investor. Real estate has distinct asset classes within real estate, covering office buildings, apartments, warehouses, and shopping centers. Each asset class has distinct fundamentals at various points in an economic cycle, as well as the potential for technological disruption. We divested over 90% of all our retail and shopping center assets when we noticed Alibaba, Amazon, Zalando & Rocket Internet huge momentum 5 to 10 years ago; we decided to become a bigger player in warehouse investments. Warehouses as an asset class have consistently outperformed in retail over many years as a huge number of retailers transformed into online capability. Warehouses are the primary storage of goods before shipment and delivery to the consumer. We clearly have huge exposure in an area where warehouse leases and rents consistently doubling above other assets classes.
- Secondly, we acquire existing opportunities that we can add value to. Green projects or new developments are not for us – We do not it. Development and greenfield projects have higher risks than the outright acquisition of an existing real estate building. We prefer the conventional theme of acquiring something existing.
- Finally, we only acquire things with the potential to add value. We are not only attracted to just acquiring real estate with a good cash flow stream. We want to essentially improve and make something better. We divest or sell it after we improve and make it better.
Emma: What will be the topmost disruptive, powerful forces shaping the real-estate market five to ten years from now? Where do you see real estate opportunities over the next decade? How do you think the real estate investments will evolve?
Michael: Emerging economies will account for a large proportion of the growth in the global real-estate market because of the scale of new buildings in rapidly urbanizing countries with high GDP growth. As the scale of real-estate development in emerging markets rises, so too does the proportion of it available for private investment. In the past two decades, in developed markets, the share of investable real estate as a percentage of GDP has been stable, at 40 to 50 percent. In emerging ones, however, the percentage is growing, so we may need to invest in emerging economies just to retain current allocations.
In addition, looking out in the next decade in real estate, we have observed a huge shift of people moving to cities from the suburbs. That trend will make apartments in cities a good place to be. It will change your geographic orientation. If you are a U.S investor, you will want to have a bias to be in low tax rates and easier work environments. If you look out 10 years, there will be real shifts that you can already see happening in the north to south migration of people. People are moving from high tax to low tax states like Florida, Texas, or North Carolina, where you can onshore workers.
It used to be the case that when people got jobs, they would choose their location based on the job. Now, many younger people search for the location and hope to find a job. If they go to the right places, the jobs will move to find them.
Emma: What wild cards might be out there? Where do you see massive changes in real estate investments – emerging trends?
Michael: One interesting trend characterizes institutional investment in real estate. There is momentum toward non-traditional asset classes, such as student housing, data centers, healthcare offices, medical facilities, and assisted-living communities. Many of these are reaching investment grade, both by the size of deals and the number of transactions.
Global investment in student housing has almost doubled, for example—from $7 billion in 2015 to about $13 billion in 2019. In the European Union alone, investor spending on student accommodations increased from 2B EUR in 2015 to about 4.5B EUR in 2019.
Data centers, aided by advances in cloud computing, are another asset class gaining interest from investors. For example, companies such as Equinix, which provides carrier-neutral data centers and Internet exchanges to enable interconnection with data centers, was converted into a real estate investment trust. As the volume and size of such deals increase, they become more attractive to institutional investors looking for scale.