Engaging Investor Communication in 2023
NAREIM Capital Raising & IR meeting: Key takeaways
Dec. 2, 2022
By IvyLee Rosario
What do you want to see more or less of from managers in 2023? This question was posed to attendees at NAREIM’s Capital Raising & IR meeting where firms shared best practices on reporting and communications.
Looking ahead to the coming year, managers want to know how they can put their best foot forward and prepare for what might not be the best of times for the real estate investment market. Investment will be very selective in 2023, with debt as number one.
More managers are focusing on opportunities to create a more sustainable profile and are looking to invest in alternatives instead of the four main asset food groups.
So how do you set yourself apart from the competition?
Provide elevated reporting requirements along ESG
State a clear strategy for growth
Keep up to speed on what others are doing
Presentations and the attendee list from the NAREIM Capital Raising & IR meeting are available to members. Click here to access.
One member asked for advice to give those coming back to managers after a first no. “We all know three no’s equals a no.” Attendees collectively shared to give space between the times you plan on reaching out, come back with a higher-level updated strategy and continue to provide feedback on progress.
What’s proving to be the most effective between these relationships?
Proactive and consistent communication
Highlighting key developments
Taking a partnership view and listening
Asking for clear direction on what LPs want or need
What’s least effective?
Consolidation of ESG/DEI priorities
Quarterly reporting: investors don’t read them; not effective; too long, not worth the effort
Macro market update
No industry standard for investor engagement
Data solutions lacking
The likelihood of a recession in the next 12 months is 65%, up from 55%. The U.S. is positioned better than other countries and consumers are holding up the GDP. Travel and hospitality hit a record high in Q3, exceeding travel during Labor Day weekend in September than pre-COVID numbers. There is a job growth rate of 3.9%, which hasn’t been seen in a long time, however are people still traveling if they don’t have a job? The employment forecast job numbers are looking backwards and is leading to a shift of negative job growth, despite the total number of jobs surpassing pre-COVID amounts in July.
2023 has the potential to be ugly for retention, one attendee said, so how does that impact strategy? “You have to teach your trainees in a recessionary environment.”
Members discussed their thoughts on what even is a recession. It used to mean two consecutive quarters of lowered GDP growth, but now “we don’t have a clue.” People are changing jobs for all sorts of reasons, becoming more personal, which leaves an unclear view for the future. However, around 75% of managers in attendance said they would be investing more next year despite the uncertainty, retraction on the lending side and slowdown in transaction volume.
Industrial growth may slow more with economic woes and consumer pull back. Warehouse and distribution vacancies hit another record low of 3.9% in the third quarter and had about 100 million square feet of new absorption, an increase from last quarter but still below the peak of 204 last year.
For apartments, rent growth is stable and still well above the long-term average. National vacancies of 4.4% are now below pre-COVID levels from 2019. However, affordability is a mounting issue, slowing Sunbelt rent growth and expensive metros realizing its accelerating rent growth is bringing the ratio back to pre-pandemic levels.
Office is in fragile territory, with vacancy up to where it was pre-COVID. Members shared that it was hard to get construction loans and discussed the main macro-economic point around office was employment, connecting to the earlier conversation on retention and training. “It’s expensive to fire, then have to rehire people,” said one member.
Other key takeaways from the NAREIM Capital Raising & IR meeting included:
85% of members said investor/manager interactions are currently in a hybrid model compared to COVID-era 2020-2021.
LP demands or requests have increased, according to 36% of meeting attendees.
With hybrid formats becoming the new normal, thought leadership should still be in person; firms can better tell if teams get along and materials should be sent in advance.
Majority of members saw more opportunity in secondary markets vs. gateways.
Most first would invest in creative or debt buckets compared to defensive traditional or contrarian.
Retail had no changes in the past five quarters; however, the mall business model is changing.
Now is the time to be overcommunicating; it’s all about trust and transparency between GPs and LPs
There’s not enough capital allocated to emerging manager programs; understand you can’t entirely differentiate yourself when starting out.