Blue Vault – Bowman Alts Week 2021: A Quick Overview of Some Insights from Day 4
March 15, 2021 | James Sprow | Blue Vault
Strategic Capital Fund Management, “Digital Infrastructure: Investing in the New Virtual Era”
Brandon Hunt, Portfolio Manager, Strategic Capital Fund Management
Strategic Capital Fund Management has a management team with diverse backgrounds in operating technology-centric organizations, including broadband carriers and telecommunications-related companies. Brandon provided an overview of the digital infrastructure ecosystem and the substantial demand drivers over the next few years.
The firm’s Strategic Wireless Infrastructure Fund is a $100 million offering focused on telecommunications infrastructure assets such as cell towers, with anchor tenants that are typically the major wireless carriers with long-term leases. The sector’s lease renewal rate is very high, 96-98%. The portfolio contains 26 assets with 58 tenants with a weighted average lease term of 25 years.
The Strategic Data Center Fund had $22.4 million in assets at year-end 2020, with four assets and 100% occupancy. The weighted average remaining lease term is 8.8 years. The fund appeals to accredited investors due to the high demand for digital infrastructure assets, high renewal rates, monthly distributions, tax deferral benefits, and growth potential due to rent escalators, 5G upgrades and portfolio aggregation. The fund acquires fully-leased, income-producing mission critical data centers with credit-worthy tenants and rent escalators. 70% of the portfolio is in the core to core plus category.
Pershing’s Panel Discussion, “Integrating Alternative Investments Into Client Portfolios”
Amit Khanna, VP of Alternative Investments, Pershing
Raleigh Peters, Managing Director, Blackstone
Brad Walker, Senior Managing Director, CAIS
Dan Vene, Managing Partner, iCapital
Raleigh Peters of Blackstone led off with a look at public vs. private company counts. Blackstone by most measures is the largest global alts manager. One of the world’s largest allocators to hedge funds.
Peters related changes they’ve seen in private markets and public markets. Only 4,400 publicly traded companies in the U.S., which is down about 40%. Maybe partly due to regulatory changes, Sarbanes Oxley. The fact is we have fewer publicly traded companies than we have had historically.
The U.S. is home to 30 million businesses. Among the largest private companies, there are still roughly 300,000 private companies. They are delaying their listings. There is a large opportunity for investors to allocate some of their capital to private markets. They can provide long-term opportunities for individual investors.
Brad Walker at CAIS discussed how they are empowering IBDs and RIAs to adopt and use Alts, helping advisors with better client outcomes.
The first challenge is liquidity. “I see it comes down to education. Understanding the different asset classes. For the last 10 or 11 years, you really didn’t need Alts. One is education, and the other is due diligence. Advisors say: I’ve never used it, why now, and how do I start that conversation?
“We lead with learning. CAIS IQ allows several things. Home office: Our advisors need to be trained before we discuss these asset classes with our clients. We are now empowering over 15,000 users.”
Dan Vene of iCapital gave another reason why investors aren’t allocating to the alternative space.
“Human nature is to continue doing what works in the past. We have enough data to show that performance in the late 90s and that changed dramatically. We had a lost decade for the S&P 500 over the 1990s. While things have been rosy recently in the public markets, I don’t think it would be prudent to expect those things to continue.”
“It’s easy to show that Alts can outperform by 500 to 700 basis points per year over longer periods of time. How do you go about doing it? Up until recently most of your clients could not take advantage of Alts. Today we have the good fortune of having partners like Blackstone that allow investors to access Alts.”
CIM Group, “CIM Real Assets & Credit Fund – Overview & Update”
Emily Vande Kro, Managing Director, Partner Solutions Group
Steve Alebrando, VP, Portfolio Oversight, CIM Group
Emily Vande Kro explained the CIM Group’s focus on creating value and enhancing communities. CIM’s 1,000+ employees are in a vertically integrated team. CIM qualifies communities for investment and has deployed capital in 75 communities. About 70% of their investments are sourced off-market and they invest at least $100 million in each community. CIM has 170+ global institutional investors. “We want our returns to be based upon improving a community, not financial engineering.”
Steve Altebrando spoke on RACR, the CIM interval fund product. The continuously-offered fund is not exchange-traded, has relatively low minimum investments, is a simplified purchase process, and offers to repurchase shares periodically. The benefits of RACR are attractive yields, access to institutional-quality investments, lower volatility, and portfolio diversification.
RACR will invest in real estate equity, real estate debt, broadly syndicated loans, middle-market loans, structure credit, and opportunistic credit.
SmartStop Self Storage REIT, “Think National, Act Local ™…. The SmartStop Way to Invest”
H. Michael Schwartz, CEO, SmartStop Self Storage REIT
Michael Schwartz presented a track record of creating shareholder value in the self storage sector. Beginning in 2008 with the first public nontraded REIT entirely focused on self storage, Strategic Storage Trust closed an all-cash merger in September 2015 for $13.75 per share, returning over $800 million to shareholders. In January 2019 SST II completed its merger with SSGT in a successful full-cycle transaction at $12.00 per share. SmartStop announced a planned merger with SST IV to close in the first half of 2021. Schwartz stated that the company is trying to provide another $1 billion in liquidity over the next 24 months.
SmartStop currently owns 151 properties in the U.S. and Canada, with a 62% concentration in the top MSAs. The sites average a population of 103K within a 3-mile radius. Schwartz described their investments in the Toronto market, comparing growth projections and the square feet of self storage per capita, making it a prime target for self storage developments.
SmartStop prides itself on its best-in-class operating performance, ranking first among competitors in YoY Revenue Growth, YoY Q3 2020 NOI growth, and Q3 2020 YoY occupancy growth. They are proud that Newsweek ranked them number one in customer experience in the self storage market. They have made continued investments in technology through data science and analytics platforms.
SmartStop has a diversified and conservative capital structure, at $10.40 NAV per share, they have a dividend yield of 5.8% and a weighted average interest rate on debt of 3.7%. They’ve announced their latest offering will be through Pacific Oak.
NexPoint, “How NexPoint is Capitalizing on the Top Real Estate Sectors in 2021”
Brian Mitts, CFO, NexPoint Real Estate Advisors
Dustin Norris, President, NexPoint
Angela Barbera, Managing Director, NexPoint
NexPoint has done about $5.1 billion in real estate acquisitions in the last 24 months. The firm owns about 36,000 residential rental units as well as 50,679 storage units owned through NexPoint Storage. NexPoint has completed 55 full-cycled real estate investments. The firm currently has $9.3 billion in AUM, raising $1.5 billion in capital in 2020.
VineBrook Homes Trust is a private REIT with $1.3 billion in assets focused on acquiring and operating single family rental homes (“SFRs”). The SFR sector is quickly becoming a core real estate allocation. Demand is outpacing supply for SFRs. Of the nearly 17 million SFR households, less than 2% are owned by institutions creating a sizeable market share for NexPoint and VineBrook Homes. But institutional investors are playing catch up, contributing $6.5 billion in new capital in the SFR space in the last five months. 
VineBrook buys older homes and rehabs them. Renovations include significant upgrades to the 50-60-year-old homes’ infrastructure, plumbing, HVAC, electrical, etc. VineBrook’s portfolio currently has over 13,000 homes focused on workforce housing, with 99.2% historical rent collections and 96+% occupancy.
VineBrook surpassed the 2,000 shareholder threshold count and will become a public filer in April 2021. They are not planning an IPO before 2022. They have a lot of “skin in the game” with about 20% ownership in the equity.
“A Conversation with Blackstone”
Raleigh Peters, Managing Director, Private Wealth Solutions
We learned more about the history of Blackstone and where their continuously-offered, nontraded REIT Blackstone Real Estate Income Trust or “BREIT” is investing.
No 1: Large investors in multifamily garden-style outside the largest markets. Highly occupied. 92% to 96% occupied.
No. 2: Industrial. Warehouses. Blackstone is the largest owner of warehouses in the world. Over 1 billion square feet. Blackstone is Amazon’s largest landlord. Last-mile, infill warehouses. “We’ve all gotten spoiled with our consumer behavior. We’re no longer satisfied with 2-day or 3-day delivery.” They’ve sold off outlying properties and focused on last mile assets.
No. 3: Triple-net lease properties with stable income. High-quality landmark assets.
No. 4: Some hospitality. Select service hotels.
No. 5: Added some self-storage. Bought Simply Self Storage with 101 storage assets, a fully-integrated self-storage platform.
Main themes you would see are multifamily in garden style, suburban markets, and industrial serving the e-commerce business in infill, last mile.
The Entrust Group, “Advise Differently With Alternative Assets”
Mindy Gayer, Business Development Manager, The Entrust Group
Mindy Gayer introduced The Entrust Group’s IRA administration services. She explained some misconceptions about self-directed IRAs. They hold the same characteristics as a regular IRA. The benefits of self-direction for clients are: taking control, diversification, and tax benefits.
She explained why advisors are considering alternative assets and Entrust’s Advisor Portal, which is automated, simple and transparent. The seven different supported plan types range from Traditional IRAs to Individual 401(K) programs. These portfolios can be diversified across real estate, private equity, debt, even marijuana-related businesses, precious metals, crypto currencies, REITs, hedge funds and almost any other alternative category of assets. She also outlined prohibited transactions for IRAs, including self-dealing and disqualified persons from transactions (mainly extended family).
iCapital Network, AltsEdge
Nick Veronis, Managing Partner, Head of Research & Due Diligence
iCapital provides advisors with Access, Education, and Support. The firm has 346 employees as of 2020 and $68.1 billion in platform assets. It supports 741 funds and has 4,925 network members.
iCapital has developed a comprehensive program designed to support advisors in understanding alternatives and incorporating them in their practices, including:
• Fund Strategy Mastery and Credentialing through Advisor Insights
• Portfolio Optimization and Fund Evaluation through factorE application
• Customized firm educational programs
• Supplemental thought leadership
• Comprehensive resources to build a deep understanding of fund ideology and management
• Exclusive iCapital/CAIA Advisor Education Partnership Program
Nick described AltsEdge, an advisor education platform. He showed short sample videos from the educational programs.
