Urban investing — real estate investments made in densely populated, ethnically diverse communities — is making a comeback, but under new names such as impact, millennial or hipster investing.
While many of the urban strategies of the past concentrated on apartments — specifically low- to middle-income housing — the latest version involves downtown properties near public transportation, as well as health clinics, senior housing and schools in underserved communities.
Still, managers are acutely aware that many of these investments have the side benefit of social good.
Among real estate investment managers involved in impact investing are relatively new firms including Turner Impact Capital LLC and Arc Capital Partners LLC — both based in Los Angeles and both spun out of real estate firm Canyon Capital Realty Advisors LLC — and Sonen Capital LLC, a San Francisco-based funds-of-funds firm.
Longstanding real estate managers such as Jones Lang LaSalle, J.P. Morgan Asset Management, Prudential Real Estate Investors and CIM Group also are making these investments. Canyon Capital plans to raise a fourth urban real estate investment fund, a series of joint ventures between Canyon the firm and Earvin “Magic” Johnson.
Before the economic downturn, a number of investors jumped into urban real estate investing. Many lost their shirts and faded from view, including MacFarlane Partners and UrbanAmerica LP.
When these managers raised their funds, mostly in 2007 and 2008, they called them double-bottom-line and triple-bottom-line strategies that focused on job and wealth creation, community revitalization and smart growth (concentrating in transit-rich urban areas) in addition to top risk-adjusted returns, said Peter Rogers, investment consultant in the New York office of Towers Watson Investment Services Inc.
“They were really targeting low- to (middle-) income neighborhoods. There were a number of funds raised that were solely focused on that,” Mr. Rogers said. “Today, it's not marketed as an urban revitalization strategy.”
Rather, real estate managers are focusing on the broader theme of urbanization — with corporations moving to urban locations from the suburbs — and the millennial generation (ages roughly from 25 to 42) preferring to rent and live in cities, Mr. Rogers said.
“Everybody is focused on the (urbanization) theme. They are focused on smart growth but they don't call it smart growth. Instead, multifamily investors are making sure the properties are near a transit line,” Mr. Rogers explained.
Institutional investors in Europe and Asia, including the 4.921 trillion kroner ($811.5 billion) Government Pension Fund Global; Singapore's S$215 billion (US$172 billion) Temasek Holdings; and Australia's A$4.2billion ($3.88 billion) Local Government Superannuation Scheme already have allocations to impact investing. The Norwegian sovereign wealth fund not only is investing in impact real estate at home, but also just started making similar investments in the U.K.