Time to shine for alternative real estate: Goldman Sachs

Alternative real estate – from data centers to healthcare, childcare to rental and storage facilities for residential real estate – is severely underrepresented in Australia’s publicly traded real estate sector. This is a flaw that is adding interest from major investors, says Adrian Sheldon, head of real estate at Goldman Sachs.

A comparison with the US listed real estate market shows how big the investment gap is in the local market. With a market capitalization of around $ 710 billion, alternatives make up more than half of the $ 1.2 billion real estate universe listed on the US market.

Locally, alternative real estate accounts for around $ 19 billion, just over 10 percent of the listed market of $ 168 billion.

“The Australian public real estate market is significantly underrepresented in alternatives when you look at alternatives in other markets. So there are tremendous opportunities for alternative real estate here, ”Sheldon told The Australian Financial Review.

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While interest in the diverse sector had already grown, the effects of the COVID-19 disorder over the past year have accelerated this. The traditional listed assets of office towers and shopping malls are facing headwinds as work and shopping patterns change over the longer term, which the pandemic is accelerating. Industrial property landlords – warehouses, factories, and logistics facilities – have done better.

This uncertainty is reflected in the stocks of real estate platforms built around shopping malls and office towers, which in some cases trade at a 20 percent discount on their assets. In contrast, real estate trusts with data centers, affordable housing developments, and childcare trade at high premiums.

“The reason for this is that a lot of this property is [in alternatives] is an essential service property, ”said Sheldon.

“That means that the underlying driver of demand for this type of property is very strong, not going anywhere, and people get it.”

The newsfeed in the real estate sector in recent weeks alone confirms this point. Listed fund manager Home Consortium, headed by former investment banker David di Pilla, is pushing plans to launch a health care real estate fund.

Centuria, which acquired a controlling stake in Heathley’s healthcare real estate platform two years ago, is stepping up its investments in short-term hospitals, and fund manager Real Asset Management is also planning to list a healthcare vehicle.

Meanwhile, data center operators like AirTrunk owned by Macquarie, who opened their fifth facility last month, have seen rapid activity as the demand for storage escalates.

The accommodation also scores as an investment destination in the world of alternatives. In the past week alone, US contractor Sentinel has announced aspirations for a $ 1 billion portfolio, while ASX-listed players like Greystar, Oxford Properties and Mirvac have big plans.

The sub-sector is broad and includes prefabricated housing estates – Manufactured Housing Estates (MHE) – aimed at retirees in specialty disabled accommodation, another boutique asset class that is also growing.

“MHE is one of the top performing sectors and has been in the US for a long time. It’s going to be the way it was institutionalized, ”Sheldon said.

“The MHE model combines issues of an aging population and affordability. This trend will definitely continue. It’s still a very fragmented market. There will be further consolidation in this sector. “

Despite the apparent lack of alternatives in the local publicly traded market, Mr. Sheldon does not anticipate a “massive onslaught” of listings in the short term. Rather, the emerging sector will evolve step by step, as there is simply not enough product to invest in, even though there is clearly demand.

“We will continue to see growth in new listed and unlisted products as the various alternative real estate sectors continue to institutionalize,” he said.

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