Viewpoint – US Real Estate Investment – Inspiration from the Open Road
Our Head of North America, Dan Cooper, takes inspiration from his summer travels to revisit the key attributes he looks for in a real estate investment, particularly during a Covid-19 economy.
For those that know me, while an optimist personally, I get paid to be prudent, evaluate risk, invest, create value and realise returns; therefore, I wake up “bearish” or cautious when it comes to investment advice. One constant in my career, and four US economic cycles, is that real estate investment is full of risk and uncertainty.
And so, it is with the US economy, as after the longest recorded positive economic cycle in US history was attained in Q4 2019, we were soon interrupted by the economic challenges associated with COVID-19. And while we all know the slogan, “Buy Low and Sell High”, we also know how difficult it is to make bullish investments in challenging times. Our mission at 90 North is to assess and mitigate risk through asset selection, diversification, value creation and constant monitoring.
In discussion with Philip Churchill, Founder and Managing Partner of 90 North, he observed that the pandemic had given him, his family and people around the globe more time to focus on family and appreciate nature all around us. I am no different and decided to drive west toward Yellowstone and the Grand Tetons, like many others. When one leaves South Dakota and enters Wyoming in a desolate area, there is a historical marker, siting the story of a man who hand dug an oil well. It hit me at this moment, ghost towns, booms and busts, economic cycles are always occurring, but none have been so dramatic in our lifetimes.
We have real uncertainty, real transformation, and therefore real opportunity. But we need tools to assist us in making investment decisions.
At 90 North we are focused on three key attributes for risk mitigation and higher probability of investment success: 1) Tenant quality 2) Technology enhanced buildings and 3) Working environment.
Tenant Quality – I believe I coined the phrase “Trophy Credit” and we have used this mantra to investment quite successfully. It means quality tenants who have both strong balance sheets and a positive outlook. Tenants with strong leadership and fiscal discipline. We prefer Investment Grade S&P rated BBB and higher. These companies can weather the ups and downs of uncertainty, and like many of our current tenants, actually grow during this current environment.
Technology Enhanced Buildings – In the days ahead, we believe LEED Certified and clean buildings will evolve further with more AI and Smart Design. Smarter building systems for not only building automation systems, but for purifying the air, monitoring the building with robots who patrol not only for safety but to measure building temperature, CO2, smoke, water leaks, traffic patterns and yes germs. This technology exists, we at 90 North have seen it in person and its practical benefits to both tenants and landlords. Again, this will accelerate as Fortune 500 companies see the benefits. At 90 North our investment selection process involves new buildings and those that have had complete renovation of the HVAC, MEP, and other smart design features.
Working Environment – The last guiding factor for our investment are corporate locations that have an overall lifestyle and rich in amenities including the outdoors, which we have learned to appreciate so much more. We see value in the suburbs, in locations that were “nature rich” with walking paths, trails and space. These attributes will only become more important during COVID, and in the long run, we believe, are important for us humans as we take a break, unplug and innovate new ideas and solutions. Nature restores and is vital to balance the modern world.
On a final note, I want to share a sign I read in Wyoming – “Kindness, Courage and Optimism are contagious, too.” It is time to transform your investment approach, with financing rates so low, even for this bearish investment advisor, we see opportunities to invest in quality, long-term tenants, in modern properties providing positive and nature rich environments for their employees to work in.