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Hines Global CIO Foresees Real Estate Investment Shift from 'Search for Beta to Search for Alpha'

David Steinbach, Global Chief Investment Officer and Co-Head of Investment Management at Hines shares his perspectives on the global real estate market, with a focus on office investments, valuations, and geographic opportunities.



David Steinbach, Global Chief Investment Officer and Co-Head of Investment Management at Hines, recently offered his insights at the Milken Institute Global Conference, hosted in Beverly Hills, California.


In a comprehensive interview with Bloomberg, he discussed the nuances of the global real estate market, focusing on office market dynamics, the interplay of private credit and equity, and Hines' strategic geographic distribution. This article breaks down Steinbach's key points, providing valuable takeaways for investors and industry stakeholders.


Watch the accompanying video below with takeaways included.


Hines' Real Estate Business


Hines is a global real estate investment, development, and management firm, founded over 65 years ago and headquartered in Houston, Texas. The company manages a diverse real estate portfolio across over 380 cities in 30 countries, encompassing residential, office, industrial, and mixed-use projects. It manages nearly $100 billion of assets, making it one of the largest privately held real estate investors and managers in the world.


 

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Gerald D. Hines started the business as a one-man office near downtown Houston in 1957. From humble beginnings, the firm has now developed, redeveloped, or acquired 1,700 properties, totaling over 576 million square feet since being established. The firm's current property and asset management portfolio includes 857 properties, representing over 270 million square feet.


Hines is not new to emerging market investing.


Brazil

Hines entered Brazil in 1998 and has 89 employees in the country with $1.7 billion in assets under management. It has developed or acquired over 31.4 million square feet of real estate domestically with over 5 million square feet of real estate presently under development.


Mexico

Mexico became a destination in 1992 at around the time NAFTA came into force. Its trophy asset in the country is the Torre del Angel in Mexico City, and has managed to build an asset base of more than $500 million in the country, serviced by 154 employees.


Panama

Hines established an office in Panama in 2005 and had at least two buildings under management, Business Park Panama, and Parque Sur, serviced by 57 employees.


Vietnam

Vietnam is one of the newest emerging markets for the investor having opened its office in Saigon (i.e., Ho Chi Minh City) in 2022. That opening marked Hines' sixth country launch and 10th office location in Asia Pacific.



David Steinbach's Interview and Key Takeaways



Key takeaways


  • Global Market Differences: Steinbach emphasized the importance of understanding that each market has its own regulatory framework and on-the-ground situations, making it crucial for investors to approach each market with a tailored strategy.


  • US Property Market and Interest Rates: According to Steinbach, the current situation in the US property market is "really two years in the making" since rates started going up. He believes the impact has been more "controlled and managed," allowing investors time to work through the issues.


  • Private Credit and Equity: While Steinbach expressed confidence in the future of private credit in real estate, he acknowledged that equity will continue to play a major role in global real estate investing.


  • Valuations and Price Discovery: Steinbach highlighted the need for large transactions to conclude to achieve price discovery. He noted that the bid-ask spread is too large for deals to make sense at the moment, but expects it to reduce later this year. He also mentioned that institutional real estate valuations have come down dramatically, with less capital ready to take big swings.


  • Geographic Focus: Currently, Hines' real estate business is distributed one-third in each of Asia, the U.S., and Europe. Steinbach sees the U.S. becoming more of the business this year and plans to chase that opportunity.


  • China and India: In China, Hines is in a "tough situation" and remains "very cautious." In contrast, India has become a larger focus for Hines in the past 24 months, with the company putting significant resources into several sectors in the country.


  • Investment Focus in the Next 12 Months: In the near term, Steinbach predicts that investors will focus mainly on the U.S. He expects real estate investing to be credit-heavy initially but move into equity later in the year.


Quote on the Future of Real Estate Investing


"The last 40 years has been downhill skiing, and it's going to be cross-country skiing for now and quite a while... It's a new mindset and a new muscle. It's going to be a real shift from a search for beta to a search for alpha and alpha generation really is that local execution and it takes a very clear-eyed view on what's going to make real estate work in this new era of investing."

Quote on Interest Rates


"If you look at the last 17 election cycles what did the FED do? About two-thirds of them, the FED actually raised rates. Only about 6 of them the FED lowered rates. One of them held steady... So the FED is likely going to take the right view for the economy and the rates have gone up almost 500 basis points in the last two years, whether or not there is a slight cut, it's flat, or slightly up, it's just not going to matter that much in the scheme of our total business."

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