In this episode of The Distribution by Juniper Square, Managing Director Brandon Sedloff sat down with Heather Border and Jennifer Stevens, co-founders at Alliance Global Advisors. The three discussed how the real estate industry has gotten more transparent, how GPs can future-proof their business, and the value of service providers.
Here is a portion of that interview edited for clarity. Watch an on-demand recording of the entire back-and-forth here or listen to this episode on Spotify, Apple Podcasts, or wherever you get your podcasts.
Brandon Sedloff: Over the last few years, what changes have you observed that managers should be paying attention to?
Heather Border: I've seen a major shift in communication. Think of the Great Financial Crisis, how that unfolded, and the lack of communication investment managers brought to the community. The increase in communication has been evident, especially as we saw the pandemic unfold and managers got to work to explain what was happening on the asset level very quickly. We're now seeing more transparency and very forthcoming messaging from managers.
Jennifer Stevens: That level of transparency has also shaped this trend line in ESG reporting, which is here to stay. It’s centered around transparency and data and making sure investors have access to information at the property level and portfolio level.
I also want to point out the expansion of the universe of subtypes. We used to only focus on the four major property types—office, industrial, multifamily, and retail. But all of these subtypes and specialty property types have emerged, and they are gaining traction amongst the institutional investor community, changing the portfolio makeup and what it takes to create alpha.
Another thing I've observed over the last five years—which has surprised me—is the acceptance of and desire for changing structures and different vehicle types in real estate. It used to be only separate accounts and commingle funds. It takes a certain understanding of how to make it work for the underlying investors to launch something compelling to the market. All of these items are creating further complexity in the real estate universe.
Brandon Sedloff: What does the investment manager of the future look like? How do you describe this changing landscape as you're working with GPs thinking through how to set up and future-proof their business?
Heather Border: Not to speak negatively about our industry, but it has been more of a dinosaur approach, very slow and resistant to change and evolution. So to me, the manager that survives and the manager that thrives is extremely transparent and is invested in data as we've never seen before. The technology implementation is going to be critical. You know, Brandon, I remember we were at a conference, and you commented that technology and real estate used to be completely bifurcated, whereas now we're looking at it as a holistic approach. I think that's gonna be critical for our industry.
Jennifer Stevens: I believe, at my core, that performance is the best differentiator for any investment manager. So sticking to what you're doing, being mindful of the investments you're making, the cost to buy an asset, how you can improve the quality of the asset to sell it, and ultimately sell it for a higher price to a different capital source—that's at the heart of what we do. So just be mindful of the attentiveness it takes at the operations and investment levels so you don't miss something.
There are ways to grow a business thoughtfully to increase enterprise value. Many sharpshooters are focused on creating one exceptional product. Stick to your knitting, do what you do well, and grow your organization by including tangential vehicles related to that strategy. If you have a non-core vehicle sponsor, a core separate account, or a programmatic joint venture to capture more deal flow, build an open-end fund over the years. Maybe not immediately, as we've seen many managers try to do recently, but strategically position that program for longevity and building the firm's enterprise value.
And then, within that non-core bucket, try to think outside the box. Say you're an industrial manager—can you build a vertical in cold storage or manufacturing that would serve a market where your team will be considered the expert because it hasn't been institutionalized yet?
Don't just accumulate assets; create that realized track record and then build on from there. There have been some missteps by managers that have grown too quickly. There have also been some incredible investment opportunities that come out of managers that are focused on growth and innovation.
Heather Border: The only other piece I'd add is that it's critical for managers to articulate where they're adding value. We're in an exceptional period where it will be very clear who's been riding the wave and who the standout managers are through this test of time. Winning managers will articulate in a very cohesive way to the investors and the consultant community where your team is truly adding value, especially from the bifurcation of this market.
Jennifer Stevens: One thing I should have mentioned earlier is the importance of creating a global distribution platform by leveraging third-party service providers or building something in-house that can reach and retain your investor base and attract new investors to your program. We might be working with an operator with exceptional top-quartile performance in their area of expertise that has never gone beyond the two strategic partners they work with. Those investors have rewarded them for performance time and time again, but there will be a time when that reward doesn't come through due to the denominator effect or due to a new CIO at the program level. One area of emphasis we instill in our managers is the importance of diversifying your investor base. And to do that efficiently, you need to have the right global distribution efforts in place.
Heather Border: The other piece I'd add is that you shouldn't be afraid to challenge your service providers. We're leaning on service providers more than we ever have in the past. Historically, we've brought in service providers, left them in place, and have not done a great job articulating to our LP base how we're really using those service providers and how they are truly integrated with our internal team members. I think there's a lot of opportunity to challenge our service providers and continue to clearly articulate our objectives and push them along to truly understand how your peer group uses their service providers.
Want to get the full conversation? Watch it on-demand now.