Show Transcript
In these tumultuous times, investors are seeking investments that can weather turbulence and stand the test of time. Kim Parlee speaks with Colin Lynch, Head of Global Real Estate Investments at TD Asset Management about how investing in global real estate could bring stability and resiliency to your portfolio.
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- In these tumultuous times, investors are seeking investments that can weather turbulence and stand the test of time. My next guest says investing in global real estate could help accomplish that. With over 660 properties in 121 cities in 17 countries across four continents, that's what's in his portfolio. And Colin Lynch is the Head of Global Real Estate Investments at TD Asset Management. He joins us now to talk a bit more about that. Colin, it's great to have you with us.
I'm going to jump right in because I think the one question everybody has right now is if you look at retailers, as an example, who have been hit very hard-- you look at restaurants that have been hit hard. You look at office towers that are empty right now, and a lot of people are wondering, what is happening with real estate? So maybe just give us a sense of what you see happening and how it compares to shocks we've seen in the past.
- Well, thank you, Kim, and it's good to be here. There is a lot happening in real estate right now. Let's look at things from a short-term versus a long-term perspective and also add a bit of a regional overlay as well. Certainly here in North America-- and we also see this in Europe as well-- there is short-term volatility with respect to retail and office.
Coming out of that and looking at the long term and into the recovery, we think that there will be a few points that will be important to note. Number one, location will matter and will continue to matter. And so well-located office properties will perform well.
The second is that we think throughout the pandemic defensive retail-- so that's grocery. That's do-it-yourself stores. We think that will perform well and will continue to perform well.
And then from a geographic perspective, certainly the experience of the pandemic has been nearly universal, but we've seen different societal adherence to public-health guidelines, which has meant that in certain parts of the world, such as in Asia, offices have actually been more highly occupied than they are in North America or Europe.
And now looking at the historic perspective, certainly we see shocks. Shocks come and they go. And what's interesting when we looked at that is how different shocks have impacted different regions of the world. In some instances, the impact on Canada has been the greatest. In other instances, the impact on Asia-Pacific has been greatest. And this time in the coronavirus pandemic, we see also differences in the impact, with the least impact being in Asia and higher impact in other parts of the world.
- I know from when I've heard you speak before, Colin, and when we've talked before, the one thing that's really important with real assets is income, which provides that stabilizer as the valuations can move around.
We've got a chart here I want to bring up that you gave to us showing us this idea of income stability through diversification. But again, the key here I think is income. When people look at this chart, it's a fairly solid green line right across the board.
- That's exactly right. That income is very important, and you see that income being preserved through shocks, whether it was the global financial shock or the current pandemic. That's also very important when you compare to interest rates and underlying bond yields, both of which have declined dramatically. The income that has been generated by real estate looks fairly attractive relative to those other alternatives in the fixed-income space.
- I want to shift gears, if I can, in terms of what we know has happened and what you think is going to happen. When you think about the next 10 years, do you see a change in the cities that are going to be leading the way or leading the returns, I should say, in real estate?
- Undoubtedly there will be an evolution of the cities that will lead the returns in real estate. I think that's why, connecting your previous question to this one, diversification is very important. Having access to the world of real-estate opportunity and having access to a strategy that provides you with the full world of real-estate opportunities so that a manager can lean in and lean out of certain geographies, that's really very important.
Fundamentally, real estate is driven by demographic characteristics and economic characteristics, i.e. population growth and changes in addition to industries within a particular city that motivate economic growth. Ultimately, we think those factors will remain constant over time, and our ability to look at cities that will grow faster than average in the future will be determined by how well those cities are able to catalyze demographic growth and also economic growth fundamentals.
- We have a board here which shows a little more detail. And I'm going to let everyone know, it's a busy board. Got a busy couple boards coming up. But I think it shows you-- because it shows you, to your point, it shows geographies. It shows things in terms of how you look at things in terms of office, industrial, retail, and multiresidential.
If we bring it up-- I mean, these green dots we're looking at show where you see things that look interesting. Maybe just talk to a couple of them just so people understand because I know that real estate is very much, to your point, a local market.
- Absolutely, and there's quite a lot of work that actually goes into creation of this. This slide here looks at where we view as attractive from a city and from a property-type perspective around the world. It's the output of a process that we call a house-feed process, and there's a lot of things that we do, whether it's looking at quantitative data or underlying economic research or many conversations that we have with asset owners around the world or, prepandemic, a lot of traveling that we do in. And in that traveling, we meet with a lot of other institutional investors in real estate.
You sum that all up. Today, we have a very dynamic real-estate world, but fundamentally how we look at attractive areas in the world hasn't changed. And so actually this view is very similar to last year's view.
And to look at a couple of examples, if you look at the industrial column, you'll see a lot of greens. And that's fundamental because the growth of e-commerce has been quite significant around the world, and so ultimately that manifests itself in more warehouses and more distribution facilities required. And so we've been tracking that for quite some time, and what you see today on this slide is a reflection of that.
Another area that we think has been very attractive is multiunit residential but for a different perspective, and that different perspective is, by and large, multiunit residential is a great income generator for an owner of real estate. And we think that income generation-- and we've already touched on this, but I'll reiterate it's quite important because ultimately that is what helps you as an investor ensure that you have great resiliency through up and down cycles.
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I'm going to jump right in because I think the one question everybody has right now is if you look at retailers, as an example, who have been hit very hard-- you look at restaurants that have been hit hard. You look at office towers that are empty right now, and a lot of people are wondering, what is happening with real estate? So maybe just give us a sense of what you see happening and how it compares to shocks we've seen in the past.
- Well, thank you, Kim, and it's good to be here. There is a lot happening in real estate right now. Let's look at things from a short-term versus a long-term perspective and also add a bit of a regional overlay as well. Certainly here in North America-- and we also see this in Europe as well-- there is short-term volatility with respect to retail and office.
Coming out of that and looking at the long term and into the recovery, we think that there will be a few points that will be important to note. Number one, location will matter and will continue to matter. And so well-located office properties will perform well.
The second is that we think throughout the pandemic defensive retail-- so that's grocery. That's do-it-yourself stores. We think that will perform well and will continue to perform well.
And then from a geographic perspective, certainly the experience of the pandemic has been nearly universal, but we've seen different societal adherence to public-health guidelines, which has meant that in certain parts of the world, such as in Asia, offices have actually been more highly occupied than they are in North America or Europe.
And now looking at the historic perspective, certainly we see shocks. Shocks come and they go. And what's interesting when we looked at that is how different shocks have impacted different regions of the world. In some instances, the impact on Canada has been the greatest. In other instances, the impact on Asia-Pacific has been greatest. And this time in the coronavirus pandemic, we see also differences in the impact, with the least impact being in Asia and higher impact in other parts of the world.
- I know from when I've heard you speak before, Colin, and when we've talked before, the one thing that's really important with real assets is income, which provides that stabilizer as the valuations can move around.
We've got a chart here I want to bring up that you gave to us showing us this idea of income stability through diversification. But again, the key here I think is income. When people look at this chart, it's a fairly solid green line right across the board.
- That's exactly right. That income is very important, and you see that income being preserved through shocks, whether it was the global financial shock or the current pandemic. That's also very important when you compare to interest rates and underlying bond yields, both of which have declined dramatically. The income that has been generated by real estate looks fairly attractive relative to those other alternatives in the fixed-income space.
- I want to shift gears, if I can, in terms of what we know has happened and what you think is going to happen. When you think about the next 10 years, do you see a change in the cities that are going to be leading the way or leading the returns, I should say, in real estate?
- Undoubtedly there will be an evolution of the cities that will lead the returns in real estate. I think that's why, connecting your previous question to this one, diversification is very important. Having access to the world of real-estate opportunity and having access to a strategy that provides you with the full world of real-estate opportunities so that a manager can lean in and lean out of certain geographies, that's really very important.
Fundamentally, real estate is driven by demographic characteristics and economic characteristics, i.e. population growth and changes in addition to industries within a particular city that motivate economic growth. Ultimately, we think those factors will remain constant over time, and our ability to look at cities that will grow faster than average in the future will be determined by how well those cities are able to catalyze demographic growth and also economic growth fundamentals.
- We have a board here which shows a little more detail. And I'm going to let everyone know, it's a busy board. Got a busy couple boards coming up. But I think it shows you-- because it shows you, to your point, it shows geographies. It shows things in terms of how you look at things in terms of office, industrial, retail, and multiresidential.
If we bring it up-- I mean, these green dots we're looking at show where you see things that look interesting. Maybe just talk to a couple of them just so people understand because I know that real estate is very much, to your point, a local market.
- Absolutely, and there's quite a lot of work that actually goes into creation of this. This slide here looks at where we view as attractive from a city and from a property-type perspective around the world. It's the output of a process that we call a house-feed process, and there's a lot of things that we do, whether it's looking at quantitative data or underlying economic research or many conversations that we have with asset owners around the world or, prepandemic, a lot of traveling that we do in. And in that traveling, we meet with a lot of other institutional investors in real estate.
You sum that all up. Today, we have a very dynamic real-estate world, but fundamentally how we look at attractive areas in the world hasn't changed. And so actually this view is very similar to last year's view.
And to look at a couple of examples, if you look at the industrial column, you'll see a lot of greens. And that's fundamental because the growth of e-commerce has been quite significant around the world, and so ultimately that manifests itself in more warehouses and more distribution facilities required. And so we've been tracking that for quite some time, and what you see today on this slide is a reflection of that.
Another area that we think has been very attractive is multiunit residential but for a different perspective, and that different perspective is, by and large, multiunit residential is a great income generator for an owner of real estate. And we think that income generation-- and we've already touched on this, but I'll reiterate it's quite important because ultimately that is what helps you as an investor ensure that you have great resiliency through up and down cycles.
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