Investors like family offices and high-net worth individuals have an opportunity to put their money into transformative real estate redevelopments planned by Hines, an international real estate firm that announced the first of a series of "tactical" real estate investment funds in January 2022.
Investors have already committed about $590 million in equity to Hines U.S. Property Recovery Fund—the money gives the fund the capacity to invest $1.5 billion immediately. Hines plans to close the fund by May 2022 with a total investment of $1 billion, with a purchasing power of $2.5 billion after leverage.
The fund has already bought assets like a trailer park in California with plans to redevelop it as industrial. Other projects might redevelop empty malls as mixed-use town centers or redevelop aging office buildings as apartments.
So why does Hines believe now is a good time for a fund focused on redevelopment? And why is Hines so interested in small, equity investments from investors like family offices and high-net worth individuals?
To find out, we caught up with Alfonso Munk, Hines’ Chief Investment Officer – Americas.
This interview has been edited for style, length and clarity.
WMRE: Why is it called a recovery fund?
Alfonso Munk: Recovery is associated with the pandemic but it is quite frankly more than that. We are banking on some of the trends that were coming into real estate pre- pandemic that we think have been accelerated as a result of the pandemic. People have seen the demise of the retail mall.… Industrial has been growing significantly. Clearly the pandemic has also put a question mark around how much office space is needed. People are also looking at residences where they could have a little more space and spaces where they could work.
So, there is plenty of real estate that is old, that is not up to modern standards, whether is design, location, sustainability perspective, etc.
The Recovery Fund is going to come in and transform certain assets, modernize them, expanding into better future uses, better layouts. We will pick assets that we can reconfigure into new uses. Older retail assets can become residential… the same with office buildings that are obsolete.
We are taking what we do every day, which is operate, develop, transform assets and modernize them and do all the hard work on the asset.
WMRE: Who are your investors in the Recovery Fund?
Alfonso Munk: This vehicle is going to allow us to offer this opportunity to investors who in the past we have not worked with as much.
In the past, the majority of our investors have been institutions. Often they have minimum thresholds for investment, usually $20 to $30 million.
With the creation of the Recovery Fund our goal is to eventually bring into our fund investors who have a lower threshold of investment… qualified individual investors, family investors, credit investors and wealth management platforms. There is a lot of capital that is interested from wealth management into investing in real estate.
WMRE: Is there anything about wealth management and your dealings with them in the Hines private REIT structure you have that made you want to do more with them?
Alfonso Munk: Wealth managers are increasing their allocations in real estate. In the past it would a single-digit amount of their overall volume. Now everyone is now getting in excess of 10 percent and 20 percent of their total portfolios in real estate. They have become more important.
Wealth management platforms are the future.
Next, I feel that these investors value the hands-on operating approach that Hines brings. We operate the assets. We manage the assets. We develop.
We also give access to more touch points for investors than the big financial platforms do. If investors want to learn about the Hines family or have time with myself or the CIO, we make ourselves available.
WMRE: What is the average amount that an investor is likely to allocate to the Recovery Fund?
Alfonso Munk: For the fund, it is a broad range, with investments up to $20 million or $30 million from the big family offices.
WMRE: What kind of returns can you provide investors? What kind of returns are they demanding?
Alfonso Munk: The Recovery Fund is a higher-returning fund. We are targeting a minimum15 percent to 16 percent return.
WMRE: How are you staying in contact with your investors?
Alfonso Munk: We combine technology access with a kind of touch and feel real person access… You can log into your account and look at relevant information on the purchases or investments. We also assign investors a contact point. Individual or family investors.... Their sophistication has increased. Their questions have become more detailed. In the past, perhaps, certain smaller investors were less demanding.
WMRE: Does Hines invest its own capital alongside investors in the Recovery Fund?
Alfonso Munk: The family is invested in the fund along with the relevant employees. Starting with the senior leadership and executives of the firm down to the regional project officers.