Real Estate Trends Deep Dive with Global Research Analyst Shifra Ansonoff - Pt.2

This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and and interview successful investors. Welcome back, Invest Like a Billionaire podcast listeners. We got a really fun episode for you. This is part 2 of a series we did with Shifra Ansonoff, and she in this episode goes into real estate. And so she is the global head of research at Prequin, which is a huge data analytics organization in alternative investments. So this was really, really fun interview and really going into kind of the broad strokes of what's happening in real estate, both domestically and internationally. And, you know, for us at the— this podcast, we really like to focus on, you know, the real macro picture because it really drives a lot of, you know, where we kind of see opportunities. And for our listeners, it creates a helpful framework for discovering where are the best places to invest and what are the drivers that are going to support, you know, different places of investing. And, you know, rising tide lifts all boats. You want to be where the tide is rising. So that's, you know, something we love to do in this podcast. And if you're enjoying this podcast, we would definitely recommend subscribing to this on your preferred platform of listening, whether that's Spotify, iTunes, and YouTube. And we do recommend on this episode to listen on YouTube if you can. Because we do have a few slides that she's going to break down. And lastly, if you are enjoying this podcast and interested in learning more about potential opportunities and investing in alternatives, go to our website, which is aspenfunds.us, and at the top there you'll see the Offerings button, and you can click there to join our investor club and be notified as we have new opportunities for our investor base. So with that, enjoy the episode. Welcome to the Invest Like a Billionaire podcast. I am your co-host Ben Fraser, joined by fellow co-host Bob Fraser. And today we have part 2 of a really exciting interview series with Shifra Ansonoff, and, uh, today we're going to dive into real estate. And so, um, Shifra is the global head of research at Prequin, and they are the alternative investment data juggernaut in this space and have over, I think you said, 400 analysts researching the data all across the globe in these investment classes. And we had our last conversation, which was really focused on the future alternatives, just a really global broad strokes look at alternatives and the growth there. And today, we're going to dive into real estate. And so, this is one that's really interesting to us, especially given our business that we're in. A lot of our investors are big investors in real estate. And so I would love to just dive right in. So Shifra, welcome back.

Thank you.

This is actually super exciting to have Shifra Beck on. So she is a data geek and, and Prequin is really, as you said, they're the, they're the big guys in the alternative space as far as data analytics. So this is awesome to have her on and to be able to talk about what's happening in the world of real estate. Yes, from a global perspective.

And there's a lot going on right now. We have inflation that's running rampant. We have, you know, geopolitical things going on. We have interest rates, uh, rising and kind of looming in the background. And so, um, there's a lot to talk about. And just as a real quick, um, uh, just a thought here is if you want to see the data, Schiffer provided a couple slides for us to provide here and you can follow along. And so we definitely recommend watching on YouTube if you'd like to see those slides. So Shifra, give us a little bit of backdrop for kind of the, the whole universe of real estate here.

Yeah, absolutely. And I guess let's start with inflation broadly. You brought that up, quite topical. So real estate side, certainly Kaia would say one of the benefits of real estate is inflation protection. And when we ask our investors, what is it, one of the reasons that they pick real estate apart from diversification, inflation protection is a key component. And frequently we've run empirical studies against all asset classes of alternatives, including real estate, to measure what is the impact of inflation. And we see a statistical significance, a strong one on the real estate side. Basically, what— the way we've done this is we took CPI and PPI data across a variety of markets, and we have our frequent indexes that measure different cohorts of the market. And we look at the returns, we see what the beta, what the coefficient is when we run these regressions, we see a positive relationship. So, and we— when we do this analysis, we look at also unexpected inflation and expected inflation. So expected inflation is really the Fisher effect formula, right? The nominal rates that incorporate the inflation component. So what is the market predicting? And then unexpected is really when you're seeing more inflation or less inflation than the formula would predict. So, but again, we see generally a correlation, but it goes much deeper than that. So Not every property or investment is going to have that protection. So you have to think about it from different angles. If you're financing the debt, right, and you have a long-term loan and you're locked into existing rates and rates go up, you're fine until you need to refinance, right? If you're financing a property that has a floating rate that will rise, your payments will go up. If you're on the equity side and it's a fixed rate, you have to raise your risk. You're not benefiting from the rising rates. But if you have an escalator clause or short-term lease, then you could benefit as the payments would contractually increase with the rate of inflation. So we see that, you know, there are office property leases in particular tend to have some type of indexation. We see it in Europe as well. So then, you know, that could be a very attractive area. Or particularly if you have strong tenants, 15-year leases, this is a very attractive area of the market, and we see that actually continuing in an inflationary environment. Secondary assets experience a sharper repricing. So poorly located older assets with vacancies, short leases, or weak covenants may see yields more— move more proportionally. Much higher and an increased risk there. So what we see that might happen is flows coming out of those properties and then flowing into the core assets where we expect relative demand as investors are shifting per the inflationary pressures. So we're also seeing variation— oh, I'm sorry.

So inflation is obviously hitting headlines here. You know, we're just approaching 8% according to the last print. And, you know, in our previous podcast episode, you talked about kind of the alternative landscape of, you know, all alternatives and Is real estate kind of the king in inflation protection, or where are you seeing kind of the best place to hide from inflation, or the best place to profit? And is it real estate?

Inflation is up there. Infrastructure as well is very much— we see protection. And even on the private equity side, We see it depends on the type of asset that you have underlying. If you have a business-to-business asset, IP tends to be sticky, so you don't necessarily see inflation take an impact. If it's commodities-based, then, you know, then you, then you will see that. So it really depends on the underlying business that you have. You have to look at the fundamentals there.

Yeah, but certainly real estate is going to be, going to be a clear winner. You know, the other, the other thing that, that I love about real estate in this environment, inflationary environment, that'll few people are thinking about. It's one of the best ways to create wealth in an inflationary environment is to borrow at fixed rates because that principal, the purchasing power of that principal balance is being diminished, right? At 8% per year or whatever it is, right? And so if you can actually have good debt terms, you know, it's actually, you know, and then if you can use that debt to purchase asset that does index with inflation, you've got a double win. And so real estate lends itself to lending, obviously. Yeah.

But to your point, Scherfer, it's not automatic. So you kind of have to have those two components working in tandem with having fixed rates so you're protected against the rising rates as inflation goes on, the expectations that interest rates will increase as well. So you have that protection if you're fixed rates. And then you obviously want your top line, your revenue, your income to be able to track with inflation. And so break that down. What do you mean by that again? And you're saying if you have escalators in your rental agreements and other things.

Yeah. The idea is that if you're receiving the income and the income is going to go up in concert with inflation, then you are protected essentially from the rise of inflation. Now, of course, there's always the question, can the tenant pay the higher rates? So that's really where the risk could be.

Sure. Could you break down— you mentioned expected versus unexpected inflation. Could you kind of explain more what that means?

Right, yes. So their formula, real rates equals nominal— it's basically nominal yield, and you take the, uh, you take into account the inflation factor.

Okay, that's real interest rates.

Yeah, yeah, real interest rates.

Got it. So real interest rates is expected or or unexpected?

That would be expected because that would be dictated by the market. Okay.

And how do you measure unexpected?

Unexpected, anything outside of that formula. So, if you end up getting a higher level or lower level.

Okay, gotcha.

Yeah. Well, one of the fascinating things we have going on right now that is kind of an anomaly historically is we have negative real interest rates where right now, at least in the US—

Strongly negative, which is actually rare historically that you have negative interest rates, especially at this level.

Yeah. And talk about a little—

Negative real rates, that is.

Negative real rates, which is nominal minus inflation. So talk about how that impacts asset prices and maybe the flows into asset classes like real estate.

Yeah. So certainly from the flows in terms of real estate, negative rates, yes. I still think, though, that there is inflation protection. I think with real estate, it's somewhat hedged. I would be more worried about the secondary assets, the performing assets with the repricing where we see an impact outside of real estate leverage buyouts, particularly they're benefiting strongly from the negative real rates today. Right. But if that shifts, of course, then that's going to compromise the asset class.

So, yeah, LBOs have kind of gone in a real cycle, right? So you're saying LBOs are benefiting in an outsized way. Kind of walk us through that. Walk us through the dynamics there.

It's really the cost of cash. So they're really, you know, it's really cheap for them to borrow and then go ahead and go ahead and buy out these companies. So we're seeing a preponderance of flows in that direction. But the worry that we have and when we run our empirical studies is that In an inflationary environment, that could decelerate.

It would decelerate. Yeah, that would make sense because the cost of capital is going up.

Yes.

Gotcha. I see.

Yeah. So you had a great chart you provided here, capital raised by real estate strategy. And so this kind of aggregates the capital that's being raised by year based on really the, the strategy. And if you maybe want to break down, you know, what these different—

yeah, walk us through this chart.

Yeah, yeah. So we talked about secondaries, those are the, uh, lower performing assets. Core, very, very strong, um, and, uh, types of tenants that are very, very high quality in the best locations ever. Value added are strategies repositioning of older properties, say an older office that maybe doesn't have great ventilation and you want to upgrade and you wanted to have configurable movable walls and you want to check the ESG box, right, effectively and migrate your property over. In, in those cases, you might end up retiring your lease and then buying it and then changing the property altogether. Opportunistic is a similar idea. You reposition assets, but, uh, much riskier. And what we're seeing here is certainly strong aggregate capital fundraising in 2021. What was very interesting in real estate is in 2020, you can see there was that dip if you look at the chart, 2020. And in 2021, the first 3 quarters of the year was relatively tepid, about $120 billion in capital raised. And then the last quarter— And it took off. $70 billion, totally took off. So when we did our projections of where real estate is going to be in 5 years, in the throes of a second weak year before Q4, we've been projecting a 7.4% CAGR.

Where—

so real estate assets is approximately $1.3 trillion today. And now we're expecting it to hit $1.83 trillion. But in light of this Q4, when we rerun our estimates, I'm predicting it's going to go up. Even more. It's just that— and it was funny, when it was in the middle of the pandemic, when we had projected our real estate AUM in 2020, um, we were projecting that it would hit $1.24 trillion, and we hit $1.3 in 2021. So we surpassed the level that we were expecting 5 years hence.

Yeah, it makes sense, especially given the inflation issue as well as the liquidity, right? There's, there's a Some of the measures we've seen recently is something like, you know, let's say about around $5 trillion in excess liquidity sitting on balance sheets, you know, to the high savings rates. So there's a lot of cash sitting on the sidelines, which in inflation, light a match, right, to cash. So that cash is dying to be deployed. What better place than real estate, especially in an inflationary environment? So it does make a lot of sense. And, and, you know, we're, and we're seeing the COVID fear of 2020. I mean, investors were paralyzed in 2020, and all of a sudden they realized the, the sky wasn't going to fall and that it's time to, to back up the truck. So I, I think we're going to see a possibly a record year in 2022 in, uh, in real estate investment.

And it might even be, when we rerun our projections, one of the higher asset classes. I mean, it is cyclical, goes up and down, but it's going to be very, very interesting to see how that plays out this year.

Yeah, it is very interesting, kind of, you know, looking back 2 years ago, no one really expected this kind of massive jump really in, in, uh, you know, cap rate or, you know, reduction in cap rates and in asset prices going up. And, um, can you talk a little bit— we talked about this in the last episode, just in alternatives in general, but really the, the flight to quality and kind of the search for yield. A lot of these kind of bigger money, big institutions, they're having a hard time finding high-quality assets that actually produce positive yield. And so what are some of the drivers in kind of what— when you had to reset the expectation for the compounded annual growth rate and hit your 5-year projection in 1 year, what was really the big driver of that?

Oh, so in the way we project our model, we actually use from Oxford Economics, CPI, unemployment statistics. That's the way what we incorporate. But we look at history as a guide, backward history, and we weight recent history more heavily than further history. So what happens recently is going to majorly influence our projections for better or for worse.

Right. Got it. So what was driving kind of a lot of the the capital flows into real estate, you know, this, this past year?

Yeah. So there are a lot of very interesting themes. So we've seen data centers on the industrial side. Data centers actually spans the real estate and infrastructure divide. So it's been a hot market. So KKR announced the purchase of CyrusOne, one of the biggest logistics data center. The shift from standard definition TV to ultra high definition, Netflix, Zoom, has increased the flow of traffic data traveling across the world. We know working from home, big— and that is there. So, and they could deliver mid to single digits to even 15% returns on these data centers. Now, basically taking funds from— we're seeing a divide between infrastructure and real estate. It really straddles both sectors, but that's a really, really interesting area. Demand is hot, super high-tech. You have data centers that do retina scans, weighing you in, weighing you out. And the shift in supply chain also is another area. Industrials, just in time to just in case. We're seeing a lot of onshoring supply chain cold storage. So I'm in Asia Pacific now, as you know. Studies show Asia Pacific is undersupplied in cold storage. Data centers are also very energy intensive, but some recent studies have shown that we're actually running 550% more applications in data centers in 2018 than in 2010, but only using 6% more energy. So from a green, green perspective, environmental friendly, it's starting to get a better rep there as well.

Yeah, I'd love this to kind of break down maybe each of the kind of core Real Estate Food Groups and kind of just, you know, talk about, you know, the different asset classes and how they're performing. And you kind of were talking about industrial, and that's an asset class that we're very bullish on, and for a lot of the same reasons that you just said. But if you could kind of break down, you know, some of the things there, like you said, the onshoring and, you know, just in case versus just in time, and some of these kind of taglines that are kind of shifting, you know, this the space has already been pretty hot because of e-commerce and other things and last-mile delivery, but it seems to be there's another kind of wave here that has really been caused by—

Yeah, we're seeing vacancy rates in industrial hitting all-time lows and, you know, and there's just, there's no places to be had. And it's been underdeveloped, right? Because of, you know, it just, markets lagged. There's not a lot of new product, not enough new product coming on the market.

Yeah, on industrials, definitely. I mean, 4 of the, the 20 largest deals were in the industrial sector.

Interesting.

Um, so the demand for warehouse space is really high. So Blackstone entered the largest private real estate deal ever, a $24 billion recapitalization of the European logistics business Mileway.

Wow.

So it's the boom in e-commerce, current demand. I think that we were talking then about Cole's, um, when we had a prior conversation. I love the whole model where you actually go, you pre-order, you go to the store, you get what you need, and then you come, you know, like everything is ready. So it's really an environment of make it convenient, make sure the supplies are there so they're accessible to consumers.

Yeah, a lot of what we're seeing is, you know, because of a lot of the supply chain disruption. And, you know, car manufacturing was a great example of that where these car manufacturers were trying to complete production because the demand was so strong as we're coming out of COVID Everyone has liquidity, but they don't have the chips and they can't put these— the chips in the cars.

What is having a single chip in inventory worth to you when your car can't be produced because of a stupid $2 chip? You know, how much is that chip worth? So, yeah, this is, you know, what she says, moving from just-in-time to just-in-case. Well, just-in-time, Just-in-case production was the new thing back in the '80s, you know? And everybody said, why have inventory, right? Let's just get it shipped, you know, right to arrive right at the moment when it's needed in the assembly line. Well, that's great until it's not great, until you have supply chain issues. So now it's just-in-case, which is, you know, it costs you an enormous amount of money to not have inventory when you need it. And so, yeah, huge, huge shift happening there, you know, to solve that issue.

Yeah, and in South Korea, they actually have one of the largest e-commerce markets in Asia Pacific, and they have a service, Dawn Delivery, that guarantees grocery deliveries at 7 AM the next day.

Wow.

So it's, it's unbelievable. I'm learning a lot in my time here.

You're seeing this shift not just in the U.S. but really globally towards kind of—

globally, yeah.

Just in case and the last mile.

And even local sourcing. I mean, we're seeing the chip manufacturers building plants, you know, and 2 plants Intel's building in Arizona. There's many others. So people are saying they'd rather have stuff that's sourced closer to home. So manufacturing is also in the increase.

Well, it's really kind of, you know, we've seen this globalization trend for really many decades. And, you know, as this just-in-time inventory supply chain where, you know, you can get something from China within, you know, a few weeks and you have it all planned out in your logistics. But it's really almost a deglobalization in certain areas and certain pieces of the supply chain to protect the, you know, challenges that we may have, you know, get disrupted again. So it's definitely something that's very interesting. Talk a little bit about, about office. That's another, that's another asset class that has been— oh yeah, asset class that has been—

you read my mind! I was just going to talk about that.

There we go.

Yeah, so office was one of the hardest hit sectors, as we know, during COVID We saw much diminished deal values there, and, um, but there's an increasing demand for value-add strategies. So these are assets that can be readily deployed, which is what we saw in 2021. It's starting to become a bit crowded So $53 billion in fundraising, 30% of all real estate fundraising for, for value-add office. Value-add. You can buy an office that's quite old, bad ventilation, old lifts, not energy efficient. And if it comes to the end of the lease, then you can buy it, let your tenant lease expire, and when it's empty, configure it accordingly. You can become energy efficient and also check the ESG box. So you can maybe get 70 square foot. The World Green Building Council said that to meet the Paris Accord limiting global warming by 2 degrees, you have to— all real estate must be net zero carbon by 2050. So, and we also saw new funds in 2021 launched to target these strategies. So for example, in London, Edmund de Rothschild subsidiary is working on converting an office space in London to a hotel. And the other thing that's interesting is we can talk about, about the shift to 3-day work week. Tenants of office buildings are, are in the driver's seat when it comes to office space. So I was just reading, pharma firms in New Jersey are shrinking footprints and landlords are hard-pressed to fill the space. So on the flip side, at CreekWend, we actually expanded in terms of the number of employees during the pandemic. And even with the hybrid office setup, we acquired a larger space in London. And if you're a firm, what we would say is you're trying to manage your real estate needs. You need to think about your peak demand rather than average demand. So even though, you know, staff may come in, if you have visitors coming in, or what if your whole team is in the same day and you have clients coming, do you have enough space for them?

Yeah, that's a really interesting thought. I mean, because we're kind of seeing this shift in office and just, you know, this hybrid kind of mode of working from home and working in the office. And it seems like a lot of the kind of bigger tech companies and employers are kind of moving towards that model. So it's not going to rebound to the same degree. But you're saying that these companies have to plan for kind of peak usage of the office, not just the average, because there may be times when higher than the average comes into the office and they need to be ready for that. So, so are you kind of implying that the, the impact may not be as, as great as maybe it might?

It might not be. And I think, you know, we're starting to see, like, initially some firms were saying, oh, you can work remotely 100%, and now they're saying come back to the office. And I think they're, they're unwinding some of that because the recognition that you need to collaborate, you should be together. And actually, on the Asia Pacific side, working from home is not really a big thing. I mean, COVID— barring COVID, you have cultural preferences, smaller living quarters, and shorter commutes, really strong public transport networks. I mean, the MRT here, it's amazing. Yeah, it's so easy to get around. So it really does vary. Yeah. And the other thing, I don't know if you've heard of— this is fascinating on offices— have you heard of the Pret index? So Bloomberg has an index, Pret, based on Pret a Manger, which is— if you've gone to the store, they sell sandwiches and croissants, and it's a big thing in London. So they wanted to measure during COVID what is the footprint, how many sandwiches are they selling at the stores in the cities versus the suburbs. And that was really a way that they measured are people coming to the office or not? So Canary Wharf and parts of Manhattan that have had very low foot traffic in the throes of the pandemic, but come February, the banks were asking people to come back to the office. And London has been ahead of us in the recovery from Omicron, where they're— we're seeing the volumes go up. So people are coming back to offices, coming back to cities. I mean, there's still obviously a big Sunbelt move that has happened, but it is really fascinating following these trends.

That's funny. So you're saying it's almost a sandwich index. So they're measuring how many sandwiches these shops are selling based on—

Suburban versus office sandwiches. Yeah. So it's great. There's science at work for you. Yeah.

Science of sandwiches. That's awesome. And so your point is that we're starting to see a rebound.

It's recovered.

It's recovering.

Yeah.

Yeah, I mean, it's, it's kind of in our, our side of things, which is kind of a lower middle market, um, investment. It's, it seems to still be a pretty, you know, big hesitation or just trepidation around office right now because of the unknowns. But are you seeing kind of some of the bigger institutional players kind of just jumping into office right now because they see opportunities, or is it kind of the, the same where, you know, there is— everyone's kind of waiting to see how it all lands at the end of the day.

Yeah, I think there is some opportunities right now. I think people are— there are some flows going to offices for sure. It's not as big as I'm seeing on the industrial side, as we just talked about. But we see this as a strong opportunity. And I think the ESG front is going to be a big driver, because I think there was a stat, something like 1 in 10 offices, I mean, is going to need some type of ESG certification and improvement. So the, the actual investment, the development that's going to be required in Europe and in US to really upgrade the offices is going to be quite strong. And that's going to be a driver.

This is something that we think as this takes off, Could you just explain what ESG means for those that may not be familiar with that term?

Oh, sure. Carbon footprint, energy efficient. So having the older offices with poor ventilation, the need to upgrade, and then even the way that people are working, the space is having more open spaces.

And are you seeing ESG demand driven by renters or—

By regulators.

By regulators.

And also by if you want to have an ESG like a LEED, L-E-E-D, is like a, a seal of approval for your property.

Okay.

And so a lot of investors are— allocators are looking at that. Are you ESG compliant or not? Yeah. And they want to demonstrate that they are, and the fund managers as well.

Yeah, I think— isn't the U.S. kind of probably behind in that? I mean, Europe is always super green and very much probably way ahead of the game there. So, but that's coming to you? You think that's coming to America and North America in a significant way?

I think it is coming, and I agree it is behind, but I believe that, yeah, that's going to be the next wave. I know Biden's pushing for it.

Sure.

Yeah, it's interesting in the office space where we're seeing a lot of opportunities and kind of repositioning. Maybe you call that opportunistic, but, you know, we're, you know, looking at office conversions to storage, which has, you know, a very increased demand right now. And you invest into multifamily, into multifamily. Um, you know, we're kind of seeing some kind of repositioning of assets that maybe it doesn't make sense to kind of bring them up to maybe standards for ESG or, or, uh, you know, those kind of—

especially in the face of questionable demand, right? Let's convert, let's reposition it in something else.

Are you— absolutely. And that—

yeah, I was gonna say, are you seeing that at a larger scale with kind of the bigger bigger players or not as much?

Yes, yes, much so. Another sector I would say that is, is heating up is hotels. And so they've experienced solid demand in aggregate deal value and on track to hit, you know, basically was around $20 billion in 2021. That was up from $9.4 billion in 2020 and outperforming the long-term average of $15 billion per year. From 2006 to 2020.

And this is capital raising, capital raising funds targeting hotel acquisition. Yeah, that's, that's interesting.

Very interesting. Yeah, actually, I was in Vegas in, um, December for holiday break in the Paris Paris Hotel, and the lines of tourists— people are definitely traveling, planes are filling up. And one of the biggest deals that we tracked last year was the $5.7 billion acquisition Cosmopolitan Las Vegas Hotel. That, that was by MGM Resorts, Stone Peak Partners. So it, it's really, really interesting how that's picking up.

It makes sense, you know. I mean, office, I could argue that you're seeing something systemic, right, that it may, it may not recover, although you're, you're bringing some great points there, you know. But, but hotels, are people really going to not travel, you know? And, uh, so to me, hotels are kind of an obvious, uh place to, place to, to buy. And, uh, from an opportunistic, uh, perspective right now, because people are going to travel, you know, traveling isn't done, it's not over, there's no systemic decline in travel for some reason, you know, it was really a more of a shock, right, because of COVID And are you seeing the demand, um, you know, going into the hospitality or hotels buying distressed properties?

Is this new development? Is it kind of a mix?

It seems to be a mix of old and new all around, but I think the expectation is that— and we're definitely seeing a boom in travel, so, you know, we're definitely going to see a lot. And people go overboard because they were home locked in for 2 years, okay, when they normally don't travel. I know for myself, we're planning so many family trips.

Cabin fever.

Cabin fever.

Are you seeing things similar to kind of what you're seeing in other asset classes? Like you said, kind of this, this flight to quality, you know, core assets being a big, you know, driver of that. Are you seeing like within the hospitality hotels, is it, you know, more luxury properties, more kind of high-end, 3-star and above, or is it kind of more of the budget, you know, side of things? Is that something you track?

Seems to be in the luxury side.

Actually. Yeah.

Yeah. Is that what you're seeing too?

Well, I honestly, I don't have any reference point, but that would just be my, my gut. I mean, for me personally, it's like, hey, we've been cooped up and, you know, for a long time, let's go and live it up, live it up a little bit. And, you know, a little bit on a discount. So I don't know if that's a long-term sustained trend, but I was kind of curious there.

If you look at slide 12 on the niche real estate assets. So with the growing and aging population, we see more individuals in pursuit of higher education and shift of investment activities on the niche side, which are long-growing trends. So the world's population is expected to rise from around 7.8 billion now to 9.7 billion in 2050. And if you look at the top part, the population of 70 and up is expected to grow from around 458 million people in 2020 to 1.1 billion in 2050. So talking about niche, we're talking about senior housing, student housing, parking lots. Um, and so in terms of the rising population, we see long-term trends there particularly. And if you look at the chart on the right, you can see the breakdown. Senior housing is around a third of the level of deal value activity. Now, the niche deal numbers overall was down in 2021 from the 2019 peak. But aggregate deal values could go up to the 2016 level. If you look at that, that was shooting up at $19 billion. So the need for student housing is increasing in the private rented sector. It's— student housing is 30%, actually, of the niche sector.

This is slide 12, and so you have here kind of the global population growth, and obviously population growth, you know, and where those kind of trends are occurring can drive a lot of demand for, you know, different sectors within real estate. And the chart on the right is breaking down these kind of niche real estate asset classes. You have senior housing, student housing, entertainment, healthcare, healthcare, car parks, education, self-storage, all kind of considered niche. And it's really fascinating. I mean, going back to 2010, I mean, you can almost barely see it. You have to have like a microscope because it's such a small amount in comparison to, you know, 2016. That was a gangbusters year and it kind of seems to be sustained at that level. Yeah, talk a little bit about, you know, breaking down what's driving some of the demand. In some of these kind of more niche, niche areas of real estate?

Yeah, no, absolutely. As we see more students go to college and they pop, you know, the enrollments are going up, up, up, um, colleges are running out of housing. Um, so a perfect example, one of my sons is at RIT and they can't guarantee housing from for sophomore year and up for students. Wow. So it's unbelievable. I didn't know that.

What are they, what are they saying? Hey, just go stay in your car for a while until you find— sleep in your car till you find— what the heck are they thinking?

Right. They have a lottery and it's a luck of the draw.

What if you lose the lottery?

Right, exactly. But we went up and we found— they do have arrangements with properties nearby and we found an amazing apartment with a kitchen and 24-hour security and a swimming pool and a gym and it's far superior to anything I've ever slept in my college.

You don't want them having too much fun though. You want to—

yeah, agreed, agreed. And so, you know, this is certainly a big thing. In Europe, there was recently announced a joint venture between Roundhill Capital and the Canada Pension Plan Investment Board to invest more than €1 billion of European PBSA assets. So that's purpose-built student accommodation. Those are high-quality, fully serviced, well-located accommodations. So we see that that is a potential area, not just in Europe, but, you know, other parts of the world, really.

I mean, it's interesting that student housing is such a big piece of this. I didn't really think it was that large. And, you know, going back to during COVID when a lot of, you know, the universities had to go virtual, you know, to me it would seem like it would soften the demand or investment into that area, but in 2021, it seems like it kind of rebounded pretty quick.

I think it's very interesting you say that. I mean, a lot of the kids, as soon as they could go to college and get away and go to class—

They were ready to go back.

They were ready to go.

As soon as the colleges opened up, I'm going away. So I think that's sort of that surge.

Yeah, we've typically seen historically during recessions, colleges tend to boom because people say, oh, if I can't get a job, let me go back to school.

Yeah, get educated.

And so, so, but we're, we're seeing, you know, it seems like, is that trend breaking? And are we seeing, you know, just stronger sustained growth in people wanting to, to get educated? Or is it really population-driven?

It's an excellent point. I mean, hearing so many stories of people going back to school and, and dialing back. I mean, with COVID we saw A lot of women have dropped out of the workforce to take care of their children. And I— and it was interesting, I was listening the other day to a show, and rather than call it the Great Resignation, the Great Reshuffling. People are reevaluating their life, what they want to do, where they want to live, you know. Do they want to live in a warmer climate or not? Do they want to— so there's this move to the Sun Belt. It's— and it's interesting, and there was a report about millennials Really, uh, the way their philosophy of not holding on, late to get married, late to have children, um, and even wanting to rent, right? Don't want to be tied down to owning a property. So it is driving rental values up, um, on the residential side. I mean, we're seeing a lot of interesting winds of change, if you will, in the last few years.

Yeah, and going back to a point you made earlier about the graying of the world, right, the, uh You know, and, uh, you know, let's not get personal here, but the silver tsunami, um, you know, we're seeing, you know, I'm not sure that's, that's great investment, you know, necessarily. I mean, we are seeing some, some systemic kind of shift there too, where a lot of people are opting for home health care. It happened during, during COVID right, that people decided not to institutionalize and avoid avoid senior care kind of facilities. You know, I wonder if we'll see that, that shift. I mean, there's no question the demographics are there, that there's a tsunami coming. And, you know, our listeners may be aware of what's happening in America, but it's, it's far, far more severe in Europe and in Asia, right? You see, uh, you know, very much a graying society. And, um, I mean, you know, you know, I'm sure you're familiar with the data out of China, that's the working age population is actually decreasing in China. And because of the one-child policy, the central planners never thought about the population as a negative instead of, wait a minute, that's my GDP growth there, my future. But hey, so big question, how's the world going to take care of this? And certainly where are the opportunities and/or the risks? So any thoughts on that?

Oh, absolutely. It's definitely see strong interest in the senior housing in Asia for sure. In, in terms of building that out, I see that continuing strongly in Asia, Japan markets here. In terms of there's a strong emphasis on health and life sciences, that's very strong. That's building out, that's building out everywhere. Health tech has been huge. So the life sciences, we didn't really talk about that, but that's also a growing area that's very poised for growth. You need the manufacturing distribution spaces. And actually, when the region's population in Asia is getting wealthier, older, or spending more on healthcare goods and services, health expenditure accounts for 60% of GDP today, versus 17% in the US, according to CBR. When you look at Asia Pacific.

Interesting. Yeah, going back to kind of we were alluding to a minute ago on the migration patterns kind of in the U.S. here and kind of this great reshuffling, I mean, it does seem to be driving, um, to your point, a lot of values in kind of the Sun Belt where it seems like a lot of population is migrating and population growth there. What other kind of, you know, larger patterns domestically here are you seeing just from a broad stroke standpoint?

Yeah. So multifamily builds rent housing has been an important component of real estate. So the strong rental, the preponderance there and the increased rates, I think Dallas is showing huge increases in rental properties. It's almost becoming unaffordable, to be honest. Yeah, um, on the rental side, uh, huge news coming out of New Jersey. I mean, in terms of home, there's not enough supply of homes to buy, um, and so it's really the wealthier investors really taking on these properties, if you will. So it's really pricing people out of the market.

Yeah, that's interesting. And we've been talking a lot about affordability in other podcasts and just how, you know, as the asset prices are increasing, you know, for single-family homes, you know, in particular, and interest rates, you know, as they increase, that drives affordability up. And so— or down, I should say. And so it becomes less affordable to purchase. And so it's kind of moving people to rent instead of purchase. But yeah, what we are seeing too also on the other side of it—

But it's the same in rents. You're saying rents are increasing just as rapidly. So it's just really housing, housing unaffordability is rising. And it's interesting with your global perspective, Shifra. So I've traveled quite a bit in Europe and in Asia, and the rents are higher, the square footage is lower and rents are higher. What are you seeing in terms of affordability? Do you guys track affordability and how does it compare US affordability versus Europe and Asia affordability?

Okay, well, Asia I can talk about. Food's not that expensive, but I mean, the rents are through the roof. I mean, Singapore, I've seen 40% increase in rents. Wow. And it's interesting. What we're seeing is a flow of people from Hong Kong leaving Hong Kong.

Oh, I can imagine the situation there.

So there's a lot of huge migration pattern coming out there, and I'm predicting— I don't know, you know, this is just Shifra speaking— with what's going on in Europe, I mean, there, there's potential there could be flows into Poland and Eastern European markets, right, who are welcoming with open arms Ukrainian population. So, you know, I think that there are so many geopolitical factors that go into Yeah.

So, so an apartment in Singapore versus an apartment in New York. Talk about affordability.

Okay. I'm paying about 8,000 Singapore dollars, so maybe that's 7,000 per month. Holy smokes. 7,500 for a 1,000 square foot apartment.

So, okay. Yeah. Comparable in New York, what would it be?

Um, it's totally anecdotal, but anecdotal, it, it might be, uh, for that size it could be around the same.

Um, you think it's the same?

I haven't—

so similar kind of—

it, it could be, it's very similar. Yeah, I haven't checked in a while.

Gotcha.

Yeah, yeah, I'd love to hear this too. I mean, this is a little more anecdotal again, but just, I mean, we have seen, you know, at least early on in the pandemic, a lot of migration out of the Northeast. And obviously someone who lives in the Northeast, you know, we've been kind of hearing that it's coming back. And obviously as people are going back to the office, they have to live in proximity to it. And so, I mean, what are you kind of seeing just in the Northeast in general from kind of population and demand, those kinds of things?

Yeah, what I'm seeing is a lot of people coming from out the cities moving to the suburbs. So we, we have a lot of New York drivers driving around my neighborhood, by the way. And yeah, but basically, you know, people looking for bigger spaces, working from home, really trying to get a little bit more land, coming to attractive school systems. What I see happening is really, you know, a contrast to where I was, you know, when I started my career. You kind of went where the job was, and that's where you ended up living, right? You built your home and real estate decision around that. It's— it seems to be becoming a theme of, where do I want to live? And then I find— and then I, I have the job that will accommodate that.

That's so interesting. Yeah, yeah, it makes sense, makes sense. Yeah, it's a, it's a major shift, you know. Yeah, what's happening.

Yeah. Well, Shifra, any other kind of big, big picture themes here? I know we've been going along and getting a lot of data. This is so, so fun. But any other kind of points that you'd like to leave with our audience here?

I mean, I, I think it's so hopeful. I think the real estate side, I'm really excited to see what happens with the repositioning of the assets, with the new look and feel open office. What does it mean to have an office space and the retailization, um, what that's going to mean for consumers? So I think we have a very bright 2022.

Awesome. Yeah, I think we'd agree with that. Well, Shifra, thank you so much. This is awesome. This was part 2 of really this kind of macro big picture look at alternatives in real estate, and we just really appreciate your thoughts here and Prequin and providing this data for our listeners. And if you enjoyed, you know, some of these thoughts and want to get a kind of in-depth report, Shifra has graciously provided a complimentary download from Prequin that you can get on the slide deck that you can download on our website, thebillionairepodcast.com. And get that. And Shifra, we thank you again for coming on and sharing your wisdom.