Viewpoint – Beds, meds, sheds and TEDs
Direct real estate investment is not a short-term game, with the transaction costs, not least from taxes, making short-term gains unlikely and encouraging at least a three- to five year hold, frequently considerably longer. And so, against a backdrop of the coronavirus pandemic and political uncertainty, those of us in the investment management world are encouraging our investors to focus on long-term trends when making their acquisition decisions. It is all about beds, meds, sheds and TEDs.
Beds have been a frequent go-to sector for Islamic investors and so they remain. What immediately springs to mind are the multifamily/private rented sector investments, but it should also include ‘alternative residential’ investments in student accommodation and care homes, which have also attracted attention and frequently provide higher yields. With a growing number of young adults globally, demand for university education can only increase and with that somewhere for the scholars to rest their heads. And while an ageing population is well documented, the decrease in care home provision is less well publicized but adds to the appeal of this sector.
Meds are for the healthcare sector, so already an overlap with beds as far as hospitals and care homes are concerned, but they should also include healthcare tenants of office properties, which frequently include laboratory space as well.
Our recent Ensemble Healthcare acquisition outside Cincinnati with a Kuwaiti equity partner was more focused on office accommodation, but COVID-19 has reminded us of the importance of laboratory space and the genuine innovations they produce and that maybe we have taken for granted in the past.
Sheds? Well, as I have shared previously, the demand for logistics assets has grown exponentially, and for good reason. Clearly, e-commerce is here to stay and will only be going in one direction. But equally, it is important to not forget the food that we all, by definition, rely on. Its distribution may be less glamorous than an automated and robot-filled Amazon fulfilment center, but is arguably even more vital.
TEDs stands for Technology, Entertainment and Design innovations, as coined by the TED Talks, that will lead our future. This includes the well-established businesses that continue to thrive: Microsoft, Apple, AMD and such. But also the relatively more recent entrants: Netflix, Tesla, Salesforce and such. Backing these companies as tenants is a vote for the growing influence and impact we expect these companies to have. And for the less risk-averse, scale-ups in any of these sectors offer the chance for significant upside, but with some risk attached.
Being asked to predict the future can seem daunting, but it is what our equity partners rightly expect from us and perhaps now more than ever is increasingly in demand.
This article was first published in Islamic Finance news dated 7th October 2020 (Volume 17, Issue 40)