The recession triggered by the coronavirus pandemic may have flustered some commercial real estate investment professionals. Not Carly Tripp, though.
Tripp is chief investment officer in the Americas for London-based investment manager Nuveen Real Estate, a TIAA subsidiary with $127 billion in assets under management as of June 30. Despite the double whammy of the pandemic and recession, Tripp and her Nuveen colleagues haven’t strayed from the long-term strategy that governs their real estate investments.
In explaining Nuveen’s commitment to a long-horizon strategy, Tripp recalls the words of one of her professors at the University of North Carolina, where she earned a master’s degree in economics.
“The only thing that trying to time the short-run business cycles will ensure is that you’ll be wrong in the long run,” Tripp remembers the professor instructing.
Tripp has embraced that philosophy as she and her Nuveen co-workers navigate the choppy seas of the current economic environment. While Tripp and her colleagues may have switched oars, they remain in the same investment boat now that they were steering before the pandemic.
“You always augment your tactics year to year, but your overarching strategy cannot flip on and off, or you’re never going to get to a point of creating a very disciplined portfolio of commercial real estate,” says Tripp, who assumed the chief investment officer role in the spring of 2019.
“We’re always buying and selling and transacting and looking at what is obsolete and what is still functional and how that’s going to change,” she adds. “But when you’re committed to a strategy, you shouldn’t be changing frequently. How you get there and how you execute on it will change, and will adapt with time. But the overarching strategy won’t.”
In a Q&A, NREI chatted with Tripp about Nuveen Real Estate’s strategy, as well as why she thinks it’s still a good time to invest in commercial real estate, which sectors Nuveen favors and frowns upon, and how the company is communicating with clients amid economic turmoil.
This Q&A has been edited for length, style and clarity.
NREI: One of the things that investors might be wondering right now is, “Should I invest in real estate or should I stay away from it?” What would your response to that be?
Carly Tripp: I would say yes, you should invest in real estate. Real estate is a great diversifier to a portfolio. No asset class is going to be shielded from the current pandemic and the economic cycle that we’re dealing with.
If you’re a diversified investor who invests in many different asset classes, given where rates are, it’s really hard to find return. And so, when we look at real estate from a historical perspective, the pricing has a spread to U.S. Treasurys that is significantly higher than it has been over the past 10 years. So that tells me it’s definitely a good time to potentially add real estate to your portfolio.
NREI: Which segments of commercial real estate are ones that people might want to consider now more than others?
Carly Tripp: Where we have overweighted is in logistics, housing and health care-driven strategies. That includes life sciences, medical office, housing, cell towers and data centers. We still feel strongly that a long-term demographic and demand push is definitely supporting those sectors. At the same time, I feel strongly that you can’t ignore the other sectors, because some of the darling sectors are pricing really, really high. You do want to take advantage of this time period to invest where there’s maybe some fractured pricing.
NREI: What is your take on retail, hospitality and office, all of which have been hit hard by the pandemic recession?
Carly Tripp: In the retail sector, you have to distinguish between the types of retail. Enclosed retail is going to be really challenged, as I think we’re going to see a consolidation in the retail space. And we’re going to see increased bankruptcies over the next 12 to 18 months. On the flip side of that, you have necessity-based retail—Target, Walmart, Lowe’s. Leading up to COVID-19, we were really, really, really keenly focused on this. To the extent that these omni-channel retailers can keep up with the technological aspect, they almost have better access to their customer base than even Amazon, since Amazon is trying to catch up to the footprint and build out last-mile distribution centers.
Retail centers with Target, Walmart and Lowe’s stores can actually be a nice diversifier and a nice hedge against Amazon. Not that I’m betting against Amazon. But Amazon is introducing some idiosyncratic risks into industrial portfolios, and so diversifying the e-commerce play and the omni-channel play is, I think, a good thing.
We don’t invest in hospitality. We typically find that that’s a very cyclical sector to invest in. Historically, it has some of the lowest risk-adjusted returns of any sectors, along with some of the highest volatility. We don’t have any intention of tactically investing in hospitality now, but that’s not to say that if the world changes and prices become dislocated and there’s lot of distress, we won’t consider it on a marginal and tactical basis.
With office, you’re going to have to be really cognizant of the location and the population migration. People will get back to the office. It’ll be probably at an overall reduced demand level. But offsetting that is some of the lowest supply that we’ve seen in a decade or two. If you’re buying in the right locations and you’re selecting the right assets, I think it’s a good point to invest, actually. And it’s a good point to invest in some of the lower-quality office assets at a pretty nice basis right now and retrofit them to be what the future of offices [will be]. That’s going to be a major opportunity.
NREI: How has the collision of the coronavirus pandemic, the recession, the presidential election and the social justice movement affected your investment decisions?
Carly Tripp: Our real estate strategy hasn’t changed, although we are looking at different tactics to add value. I think that lack of change is because we have such a long-standing ESG program. Our CEO is in London. As we all know, Europeans are much further along on ESG issues than we are in the United States. So ESG has been front and center for us for a long time. For instance, we’ve been investing in social impact for a really long time. When we look at clients and we look at other people in the real estate industry, they’ve been, at times, slower to adopt ESG. I think we’ve really been on the forefront. We’ve had an ESG team for years, and that’s just ingrained in how we underwrite and how we operate our buildings.
NREI: How are you communicating with clients these days about the state of the commercial real estate market?
Carly Tripp: Communication is incredibly important, and it’s non-stop at this point, so not only is our staff directly communicating with the clients, but so are the portfolio management team, the execution team, the executive management team. Anyone is available to communicate with the client. Then we have webinars and similar things that we’re offering to not only our existing clients, but other clients in the industry as well so they can access as much information as we can give them. However, I do feel like people are getting a little bit of information overload at this point. There’s a little bit of fatigue around that. Communication has slowed down a bit, and clients are generally comfortable that they’re hearing the same story from all of the managers they work with.
