Heard on the Thames: 21st Century Oracle
Below is an excerpt from the 26 June 2023 Heard on the Thames Featured Insight: 21st Century Oracle, an eight-page report:
The presence of dual real estate markets (public and private) is an underappreciated blessing as it creates a comparison mechanism unavailable in most other corners of the investment world and offers unique opportunities for alpha creation. One of the most prominent such strategies for private market investors is to favor sectors that trade at high NAV premiums in the public market. This approach outpaces one based on survey responses from private institutional investors, even if this latest method can be positive. The predictive value of public markets to private investors has endured over the years as it brings real-time collective wisdom to a business that evolves at a sometimes-sclerotic pace in the private market.
Inefficiencies are also surprisingly common in the public market, especially where industry norms lead to company disclosures that are demonstrably flawed. A strong bias in favour of listed PropCos with the most understated reported NAVs relative to Green Street’s spot estimates has delivered superior risk-adjusted returns.
Modern-day financial oracles are elusive, but easy-to-implement top-down sector allocation shortcuts are available to those private market participants willing to look for them. Separately, public market investors can capitalise on inefficient pricing in the listed space via simple algorithms utilising thoughtfully derived spot NAVs. Sometimes the best recipe for success is the simplest.
Please provide your email address below to receive this Heard on the Thames Featured Insight.
The presence of dual real estate markets (public and private) is an underappreciated blessing as it creates a comparison mechanism unavailable in most other corners of the investment world and offers unique opportunities for alpha creation. One of the most prominent such strategies for private market investors is to favor sectors that trade at high NAV premiums in the public market. This approach outpaces one based on survey responses from private institutional investors, even if this latest method can be positive. The predictive value of public markets to private investors has endured over the years as it brings real-time collective wisdom to a business that evolves at a sometimes-sclerotic pace in the private market.
Inefficiencies are also surprisingly common in the public market, especially where industry norms lead to company disclosures that are demonstrably flawed. A strong bias in favour of listed PropCos with the most understated reported NAVs relative to Green Street’s spot estimates has delivered superior risk-adjusted returns.
Modern-day financial oracles are elusive, but easy-to-implement top-down sector allocation shortcuts are available to those private market participants willing to look for them. Separately, public market investors can capitalise on inefficient pricing in the listed space via simple algorithms utilising thoughtfully derived spot NAVs. Sometimes the best recipe for success is the simplest.
Please provide your email address below to receive this Heard on the Thames Featured Insight.