Pandemic Pivot For CRE About Rethinking Market, Reskilling Staff
The coronavirus pandemic has been portrayed as a change agent and disrupter, in some cases ruthlessly shifting entire sectors of the economy. Because of that, it can be a chance for companies or individuals in real estate to pivot their business or career path.
Private equity real estate investment manager Meyer Bergman, which manages €7.2B ($8.7B) in gross assets, offers a case study in the way operational responses and reskilling often parallel larger market shifts. The firm, which recently rebranded to MARK, will invest based on a more multiplatform strategy, with urban logistics and life sciences playing a bigger role. Previously, it specialized in retail.
Marcus Meijer, the firm’s CEO, said that many of the shifts, especially the increased turn toward logistics, predated COVID-19. The company’s relatively new Crossbay urban logistics platform, which operates across Europe, grew out of investments the company began making in mid-2019.
But as Meijer and other leaders saw pre-pandemic trends, such as low interest rates, extensive amounts of interested capital sitting on the sidelines and rising prices become supercharged by the disruption of COVID-19, it was clear that along with changing strategy, the company also needed to rethink how it operates.
“It’s not an easy shift,” Meijer said. “Of course, you could throw out marketing talk and say we’re going to start doing some exciting new things, but you need to back it up with infrastructure and your team. You need real people, so you’re not just selling air. You can’t manage a team like you did five or 10 years ago.”
The coronavirus is forcing the hand of many CRE firms, making them rethink strategy and focus, especially during this current transition period when positive vaccine news is kick-starting thoughts of post-recovery deal-making. Chicago-based Harrison Street, which focuses on alternative real estate, has been busy in recent months investing in life sciences, data centers and student housing to further diversify its portfolio, including a life sciences project in the nascent Lincoln Yards megaproject in the firm’s hometown.
But this relatively slow moment offers a chance to reflect, reskill, and rethink operations and talent, one that should not be missed, said John D’Angelo, a managing director of U.S. real estate at Deloitte.
D’Angelo co-authored a study from earlier this year highlighting the technological gap facing CRE, notably the need to embrace data analytics, software development and cloud computing. And many younger, more digitally native firms in the industry have highlighted how improved technological adoption and changing management styles can improve talent attraction and retention, especially among younger workers.
“People in the corner office are deal junkies, not operations people,” D’Angelo said.
In addition, like Meijer and others, he said he sees this moment calling for larger operational shifts within the industry.
“There’s great amplitude and awareness that maybe there’s a different way of working,” he said. “The conversations I’m having suggest a lightbulb is going off. More people working remotely has shined a light on processes and efficiencies that can get masked when everybody is at the office doing work. When you’re in hypergrowth mode, you throw people at the problem, do whatever it takes to grow. When things slow down, you realize you have all this inefficiency. The pandemic is causing people to look at their operations and realize there’s bloat.”
D’Angelo said there will be an increased focus on data initiatives and data governance and using more and more analytics to drive decisions, due in part to increased pressure to make sound investments during the recovery. The appetite for risk in CRE may be lower, especially with uncertainty and a slow recovery in many downtown office markets.
For Meijer, that reality underscores the need to differentiate both skills and investments. Luring investors when they can look toward big players like Blackstone and Starwood Capital is a challenge and has been for years. COVID-19’s impact on the market only highlights the need for smaller players to give investors a USP. And now is the time to pivot. It is never a straightforward process, but firms can come off as distracted if they make that kind of move during typical periods when they’re busy fundraising or deal-making.
One of MARK’s biggest successes on that front has been logistics. Meijer says that effort was also shaped by a competitive landscape dominated by bigger names like Prologis. His firm decided to focus more on last-mile options and since 2019 has invested in close to 100 new assets in an array of countries, including Italy, Spain, France, Belgium and Germany.
In parallel with those investments, the company has also focused on the geographic distribution of talent, bringing on more specialized, in-country, local talent and hiring less in London. Having that talent pipeline in place as the pandemic hit meant being able to ramp up acquisitions over the last six months. That focus on specialized talent can apply across countries and sectors.
“There needs to be less emphasis on having expensive, more plain vanilla private equity people sitting in London,” he said. “You need more people who understand the sectors more intimately.”
MARK also focused on new talent when it came to the life sciences and lab sector. The U.S. market is more mature and has more specialized talent, so MARK has pushed to build internal capabilities and hire as much European talent with a life sciences background as possible. It has been tougher to find new talent, Meijer said, but it has definitely made the firm more effective. He compared it to working in the world of data centers: You can get the right property, but unless you have the internal expertise and external relationships, it’s hard to compete and very difficult to land marquee clients such as AWS.
“COVID has allowed us to make the pivot,” Meijer said. “If COVID hadn’t happened, there’s a good chance we’d be less focused on making the pivot and wouldn’t have made changes in the team.”