Skip to main content
MENU
Subscribe
  • Login
  • My Account
  • Logout
  • Register For Free
  • Subscribe
  • Topics
    • Alternatives
    • Artificial Intelligence
    • CIOs
    • Consultants
    • Defined Contribution
    • ESG
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Partner Content
    • Private Credit
    • Pension Funds
    • Private Equity
    • Real Estate
    • Regulation
    • Special Reports
    • Washington
    • White Papers
  • International
    • U.K.
    • Canada
    • Europe
    • Asia
    • Australia - New Zealand
    • Middle East
    • Latin America
    • Africa
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Influential Women in Institutional Investing 2024
    • Eddy Awards
  • Resource Guides
    • Active Thematic Global Equities
    • Retirement Income
    • Fixed Income
    • Pension Risk Transfer
    • Pooled Employer Plans (PEPs)
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • ESG Rated ETFs
    • Divestment Database
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • DC Plan Design: Improving Participant Outcomes
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
  • Print
Breadcrumb
  1. Home
  2. ALTERNATIVES
May 26, 2014 01:00 AM

Urban real estate investing is back with a new name, look

Managers changing focus to broad city life for millennials

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Towers Watson Investment Services' Peter Rogers: “Today, it's not marketed as an urban revitalization strategy.”

    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.

    Netherlands lead way

    Institutional investors in the Netherlands have been investing in social housing for some time, said Peter Hobbs, managing director of IPD Group Ltd., London, the real estate subsidiary of MSCI Ltd.

    Social housing — properties that are government subsidized and supported, but not government owned — is growing globally, Mr. Hobbs added. “We are finding institutional investors investing in this sector of the market. It balances their desire for return and social good.”

    These are large markets, with IPD estimating social housing in the Netherlands at around $200 million, Mr. Hobbs said. “The scale of the market in that (relatively small) country illustrates its potentially large scale globally,” he added.

    More recently, pension plans in the U.K. have been making these investments, Mr. Hobbs said.

    U.S. investors, even those that had uneven experiences with urban investing in the past — including the University of Michigan endowment, which has a $9.5 billion long-term portfolio, and the $289.6 billionCalifornia Public Employees' Retirement System — are giving the strategy another look.

    University of Michigan is an investor in Turner-Agassi Charter School Facilities Fund, which invests in charter schools in U.S. markets. CalPERS made close to a $1 billion in commitments to urban revitalization in the past, including a $500 million commitment as part of the California Initiative Program. CalPERS is also an investor in the Canyon-Johnson funds.

    And earlier this year, CalPERS committed $200 million to Pacific Urban Residential, which invests in apartments in big cities and focuses on sustainability for older apartments. CalPERS also committed $200 million, with possibility of an additional commitment by 2015, in a joint venture with Canyon Capital for urban real estate.

    Bobby Turner, founder of Turner Impact Capital in Santa Monica, Calif., believes the opportunity set is in the trillions of dollars.

    “These are issues (environmental, educational, workforce housing) that had been dealt with by the government or philanthropy,” he said, but the size of the need is so large that there is room for private investment dollars. “The U.S. is behind other nations in investing in impact investing, which I like to call profits with a purpose,” Mr. Turner said. Turner Impact has $210.7 million in assets under management, and Mr. Turner has dedicated his 5-month-old firm to impact investing.

    Perella Weinberg Partners is developing a social impact specialty within its outsourced CIO business, called Agility, said Eric Haskel, Denver-based managing director and portfolio manager at Agility. Mr. Haskel heads a social impact investing initiative, including urban real estate investments.

    Agility oversees the $800 million Rockefeller Brothers Fund, a New York-based foundation, which has committed to making impact investing a core part of its investment strategy, Mr. Haskel said.

    Few proven managers

    Although there is demand for these investments, especially from university endowments and foundations, there aren't many proven managers, he said. “Allocating money to impact investing is relatively easy, but finding impact investments that meet the traditional risk/return requirements of institutional investors is still challenged.”

    Joseph Azelby, head of J.P. Morgan Asset Management's global real assets group, New York, agreed urban investing is back and has become more encompassing. His firm is capturing the urbanization trend throughout its portfolios — core, value-added and separate accounts.

    Much of the investments are multiuse with apartments on the top and retail down below, he said. “On the right streets, the retail could be worth a fortune,” Mr. Azelby said. “We've had success in an asset (property) in SoHo on Houston Street (in Manhattan) with rentals up top (and) Whole Foods on the ground floor and it really works.”

    Many real estate investment managers say there is profit to be made, especially with cities offering entitlement bonuses that allow managers to build more units per square foot of land, thereby bringing their costs down. In exchange, developers set aside 10% to 20% of the project for affordable or subsidized housing.

    In its second-quarter real estate report released May 20, Met Life Real Estate Investors said “apartments and offices located in markets that have a concentration of highly skilled workers, particularly in urban areas, will tend to generate long-term sustainable net operating income growth.”

    This promise of returns is making investors pay attention to the sector once again.

    Firms like Canyon have earned double-digit returns, which look good to investors even though such funds never did reach the 30% internal rate of return most thought they would reap in 2007.

    Jonathan Roth, president of Canyon Realty in Los Angeles, said his firm continues to focus on urban investing. Canyon Capital's real estate business has $1 billion invested in urban real estate across its strategies, both equity and debt.

    “It will be a trend for a long time. ... Job growth is in the city centers,” Mr. Roth said.

    Arc Capital just received a cash infusion from alternative investment firm Columbia Pacific Capital Management, Seattle, which will own a stake in the firm and be a limited partner in future funds, said Neville Rhone, managing partner at Arc Capital.

    Related Articles
    LaSalle names director on debt investments, special situations team
    World Economic Forum provides road map for impact investing
    Rockefeller Group taking majority stake in TA Realty
    Impact investors shifting gears to accommodate specific goals
    Opportunities seen in urban expansion
    CIM Group closes $2.4 billion real estate fund
    Recommended for You
    Headshot of Brent McGowan
    Manulife Investment Management picks CIO of agriculture
    A man walking through a data center.
    Blue Owl closes data center-focused digital infrastructure fund at $7 billion
    Systematica Investments' Leda Braga
    Hedge fund highflier Leda Braga reflects on 10 years of Systematica
    Sponsored
    White Papers
    The State of Lifetime Income Report
    The Next Wave of LDI Evolution
    Retirement security to future income wins, TIAA brings you the latest financial…
    U.S. Public Funds Top Performers: Q2 2024
    Generative AI Investing: Opportunities at a Key Tech Inflection Point
    Research for Institutional Money Management: Advancing Physical Risk Modelling,…
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    October 23, 2023 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Custom Content
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2025. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Artificial Intelligence
      • CIOs
      • Consultants
      • Defined Contribution
      • ESG
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Partner Content
      • Private Credit
      • Pension Funds
      • Private Equity
      • Real Estate
      • Regulation
      • Special Reports
      • Washington
      • White Papers
    • International
      • U.K.
      • Canada
      • Europe
      • Asia
      • Australia - New Zealand
      • Middle East
      • Latin America
      • Africa
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Influential Women in Institutional Investing 2024
      • Eddy Awards
    • Resource Guides
      • Active Thematic Global Equities
      • Retirement Income
      • Fixed Income
      • Pension Risk Transfer
      • Pooled Employer Plans (PEPs)
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • ESG Rated ETFs
      • Divestment Database
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • DC Plan Design: Improving Participant Outcomes
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
    • Print