Essential Asset Strategy

Over the past few years,
various trends have favored the suburbs due in part to “clustering” of hard resources (living, working, culture) and soft resources (technological, social) offering a lower cost, more compelling and lifestyle-fulfilling option for many workers and retirees relative to urban centers.* The pandemic has amplified this effect as nearly 40% of people in urban areas are considering relocating to the suburbs.**

As a result, we expect the next 10 years to be the “decade of the suburbs” for consumers and for essential need real estate investing.

*Commercial Real Estate at the Crossroads: MIT, 2018
**Harris Poll April 2020

Essential Suburban Retail

Despite the popular tendency to invest in core assets during economic downturns, it has been proven over multiple recessions that the backbone of our nation’s consumer base, the suburban population, has and will continue to drive consumption. The population’s basic needs must still be satisfied, and spending habits remain largely intact despite economic fluctuations.

Essential Suburban Medical

As the median age of the population grows, health care costs are exponentially increasing. At the same time pressures from governments and insurers to provide consumers with more affordable health care is relentless. This has led to a dramatic decentralization of the health-care industry to provide services closer to consumers through outpatient centers rather than costly hospitals. Consolidation among health care providers has lead to greater mergers and acquisition activity of hospitals and health care systems.*

*CBRE 2019 Medical Office Trends

Legacy versus the future.

Our view is that legacy assets will become more challenged looking ahead. The Fund will, by its nature, be more nimble as it will only acquire targeted, essential assets that undergo post-pandemic underwriting.

Pre-Pandemic
“Legacy” Assets
Retail
Legacy tenant mix with “challenged” anchors.
Legacy assets may prove vulnerable to economic and paradigm shocks (Outlet malls, Enclosed Malls, Big Box Centers).
Higher legacy rents may be pressured.
Medical
Legacy, expensive hospital campus locations with limited consumer amenities.
General practitioners and other longer-wait groups are losing competitive edge.
Overall
Legacy interest rates / onerous prepayment costs / implied higher leverage due to deflationary values.
Post-Pandemic
“Targeted” Acquisitions
Retail
Targeting creditworthy grocers & top national
“off-price” retailers only.
Complementary mix of internet-resistance tenants.
Looking for better sales and health ratios relative to occupancy costs.
Medical
Off-campus practices to grow and continue to be acquired by health networks.
Destination retail ”walk-in” practices to grow (urgent care, dialysis, eye, bloodwork).
Overall
All-time low interest rates with fixed, defined prepays matching fund hold period and modest leverage.

Fund Goals

The Fund’s goals are denoted by our priorities to our investors:

Preservation of Investor Capital

Generation of Stable, Predictable Cash Flows

Modest Asset Valuation Growth

Generation of Real, Risk and Inflation-Adjusted Returns

After-tax Depreciation Benefits