Morgan Stanley's top real estate investing 'megatrends'

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April’s Consumer Price Index (CPI) data showed shelter prices increased 5.5% year over year, adding to the already costly price of housing investment. With mortgage rates high and housing inventory low, how can investors find a good entry point into the housing sector?

Morgan Stanley Real Estate Investing Co-CEO Lauren Hochfelder joins Wealth! to break down Morgan Stanley’s real estate investing megatrends and advise investors on what to consider when investing in the housing sector.

Hochfelder notes that growth in e-commerce will drive demand for warehouses, creating “a complete realignment in the global supply chain. So simply put, the supply chain of the last 20 years will not be the supply chain of the next 20. We’re doing a U-turn on globalization. All these event driven supply shocks. And again, as companies are forced to rebuild their infrastructure in response to a realigning supply chain, that too drives demand for warehouses.

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This post was written by Nicholas Jacobino

Video Transcript

Yesterday’s consumer price index showed that the cost of shelter which includes rent grew by 4/10 of a percent, putting it up over 5% from this time last year.

So it is now a good time to invest in real estate for more.

Let’s bring in Lauren Hochfelder, who is the Morgan Stanley real estate investing, co ceo great to have you here with us, Lauren, first and foremost, a lot of people just trying to figure out how much they should be allocating if they are allocating a re a real estate investment here.

What’s a good way to get an entry point in?

So, hi Brad, thanks for having me on and uh I always love to talk to you about real estate.

So look, we think this is a really, really interesting time uh to be investing in real estate.

We’re two years into a real estate correction.

And you’re seeing broad repricing across the board, there’s certainly uh some assets that are distressed for a reason.

We tend to stay away from those.

But across the board, there are a lot of asset classes that are really interesting performing well in terms of income growth, et cetera and yet they’re pricing off materially 20 30%.

So we think it’s a really interesting time to get in.

Let’s kind of drill down on it because real estate very broad.

Are we talking single family, multifamily rental units?

What is it that is seeing the most kind of demand or the most opportunity, at least as an investment mechanism?


So we like to invest behind broad mega trends that drive demand through cycles.

And so some of the mega trends we’re focused on today are continued growth in e commerce.

I heard your conversation about uh Walmart ecommerce sales and that absolutely uh as a trend continues and that drives a lot of demand for those warehouses that get those goods to our front doors every day.

So that’s one, the second is a complete realignment in the global supply chain.

So simply put the supply chain of the last 20 years will not be the supply chain of the next 20.

We’re doing a U turn on globalization, all these event driven supply shocks and again, as companies are forced to rebuild their infrastructure in response to a realigning supply chain that too drives demand uh for warehouses.

The third is look, we are uh we have aging demographics as a population, we are aging and that is changing our housing preferences and needs.

So there is a lot going on.

And uh in real estate, you have to distinguish between changes in interest rates and changes in how people use space.

I wanna linger on that for a hot second here and the changes in interest rates.

How is that weighing into the decision as, as people weigh real estate as an investment mechanism and, and asset type?

Well, look, real estate is a levered asset class and of course, it is heavily impacted by interest rates.

I’d say that we like to invest in a way that we can perform through any interest rate cycle.

Today, you’re seeing a lot of as owners who acquired assets and financed them heavily in a very different interest rate environment and they are getting squeezed today, they have maturities coming up and they cannot refinance that debt at the current levels.

And that’s creating pressure in the system.

We focus on having durable capital stacks that enable you to get through any interest rate environment.

And frankly, we focus on investing in real estate where you can really push income growth where you can grow your top line in excess of any rate expansion.

When we think about real estate investing, it, it comes back to one word repeated three times continuously, location, location, location, and for any of the types of real estate investments, whether it is looking at warehouses, whether it’s looking at even the build out of, of data centers or even multifamily homes, all of these things considered, it still comes down to where those are placed.

Is there a hot spot where you’re seeing investors kind of flock towards in their calculus of the locations that are best serving for this as an investment strategy.


Look, first, I’d say on a global basis, I do think the US is really the most interesting place to invest today.

But let me say you’re absolutely right.

It was uh ingrained in my brain location, location, location.

But I’d say today it’s actually, of course, location is paramount, but I would say it’s dislocation, dislocation, dislocation, you have to look at where, how things are changing, whether that’s where people are moving.

So, you know, I would said, uh 20 years ago, uh you want to own assets in New York City and certainly, uh there are some you still wanna own here but people have migrated, right?

People test drove a lot of different things in COVID.

They test drove different working conditions.

They decided they liked, um working from home.

They test drove different markets, right.

So Miami Dallas, some of these markets to which people moved really changed the location of where you wanna own real estate.