Real estate poses many enticing opportunities to active investors, and this is an especially interesting time for real estate investing both here in the United States and abroad.
To comment on key changes in the area, we brought in top-tier international real estate investor Nicholas Marine.
Born and raised in South Africa, Marine relocated at the age of 19 to the US, where he studied finance and business analytics at prestigious schools. He went on to become a professional investor with major investment firms whose portfolios spanned North America and Europe.
Marine is currently working with a highly successful real estate investment firm located in New York, with more than $1 billion in dedicated real estate capital.
A bonafide real estate investing expert, Marine covered many of the vital changes we’ve seen in real estate over just the last two years so that our readers can stay informed and make carefully considered investment decisions of their own.
Why real estate? What drew you into real estate investing at the start of your career?
Marine: I liked real estate from a young age as, growing up in post-Apartheid South Africa, the country was in a massive development cycle which I was fortunate to witness. I saw new housing projects, shopping malls, airports, and commercial developments spring up over two decades. I saw the transformational effect real estate can have on a country, city, and micro-market, and I wanted to be a part of it.
Speaking to any business leaders in the readership, do you think having an office space in close proximity to active neighborhoods and commercial centers offers significant benefits?
Marine: It depends on the goal of the real estate space. Of course, most offices have a common goal of bringing a workforce together, but this is constantly changing and remote work has exposed acute issues with uninspiring traditional office buildings.
If a CEO has a flexible work policy but wants to entice younger employees to spend more time in the office, they could prioritize the quality of the space and its location in a vibrant neighborhood where employees could live or play.
But this isn’t always the case. In the instance where the workforce is older and lives predominantly in suburban locations, a low-rise building with significant onsite parking and outdoor space could be the solution. It’s important to be adaptive and embrace each commercial user differently.
Has the potential wide-scale transition to hybrid work altered your view of investment in office buildings in any way? Is versatile, mixed-use real estate healthier real estate in the long-term?
Marine: Absolutely. Hybrid work means that office utilization is lower on the margin. However, in scenarios where companies mandate in-office days of, for example, three times per week, most companies will maintain the same amount of space or more as employees want more personal space.
Tenant type is key as there is an important balance to find between financial tenants who are stable and spend most of their time in the office versus technology tenants who don’t spend as much time in the office but are growing. In almost all scenarios, mixed-use real estate with robust amenities is favored. There has been an enormous flight to quality over the past two years, and we don’t see any sign of it slowing down.
In a general sense, what are some key differences between your investing efforts in the US versus in Europe?
Marine: Investing in the US is more mature than Europe, insofar as there is a lot more formalized information both on the leasing and transaction side. This is largely because Europe is still highly fragmented, with a number of small players in the investment market, including lots of family-owned assets that have sentimental value and are unlikely to trade.
Of course, the scale of the US, meaning 350 million people that speak the same language in the same country under the same legal jurisdiction, has a profound impact on demand and makes it much easier to invest in larger deals than in Europe. However, it can be easier to find dislocation in European asset values, and for this reason, I value spending time working there.
Looking ahead to the next 5-10 years, what kinds of changes do real estate investors need to be prepared for?
Marine: As interest rates increase, real estate investors need to position their portfolios defensibly as their cost of borrowing increases and eats away at returns. Similarly, as inflation continues to increase, gross leases whereby the tenant pays a set expense load will be hit disproportionately as landlords’ expense loads will increase at a faster pace than they’re able to increase rent.
Thanks so much for joining us. Just one last question: have you come away from the pandemic with any major perspective shifts?
Marine: At the height of the pandemic, I thought the world would be changed on a macro-level for good: offices would be empty and hotels would shut down in abundance. Two years in, things aren’t far off from how they were before, with the exception of remote work. My perspective on time has changed. I believe now more than ever in focusing on the medium- and long-term. Also, be cautious when overreacting to short-term fluctuations.