Introduction
The real estate investment landscape is increasingly global, with investors seeking opportunities beyond their domestic markets to diversify their portfolios and tap into new sources of growth. This trend towards globalization is being driven by a range of factors, including the rise of cross-border capital flows, the growth of emerging markets, and the increasing sophistication of investors and managers. In this research report, we examine the key drivers of the globalization of real estate investing and explore how Warm Springs Capital is navigating this complex and dynamic landscape to build a diversified, global portfolio.
The Rise of Cross-Border Capital Flows and the Growth of Emerging Markets
One of the most significant factors driving the globalization of real estate investing is the rise of cross-border capital flows. According to data from Real Capital Analytics, cross-border investment in commercial real estate reached a record high of $405 billion in 2019, representing a 54% increase from the previous peak in 2007. This trend is being fueled by a range of factors, including the search for yield in a low-interest-rate environment, the desire for portfolio diversification, and the increasing appetite of institutional investors for real estate exposure.
Another key driver of the globalization of real estate investing is the growth of emerging markets. Our analysis of global economic trends indicates that emerging markets are expected to account for more than 60% of global GDP growth over the next decade, driven by factors such as population growth, urbanization, and rising middle-class consumption. This presents significant opportunities for real estate investors, particularly in sectors such as logistics, residential, and retail.
Warm Springs Capital's Approach to Building a Diversified, Global Portfolio
To capitalize on these trends and build a diversified, global portfolio, Warm Springs Capital has developed a multi-faceted investment strategy that focuses on four key areas:
1. Geographic Diversification
We are actively pursuing investments across a range of geographies, with a focus on markets that exhibit strong economic fundamentals, favorable demographic trends, and a supportive regulatory environment. Our current portfolio includes investments in 15 countries across North America, Europe, Asia, and Latin America, with a target allocation of 30-40% to emerging markets.
2. Asset Class Diversification
In addition to geographic diversification, we are also focused on building a diversified portfolio across a range of asset classes, including office, retail, residential, logistics, and hospitality. Our asset allocation strategy is driven by a rigorous analysis of global market trends and the identification of sectors and submarkets that offer attractive risk-adjusted returns.
3. Strategic Partnerships and Joint Ventures
To navigate the complexities of global real estate investing and mitigate risks, we are actively pursuing strategic partnerships and joint ventures with local operators, developers, and investors. These partnerships provide us with valuable market intelligence, access to off-market opportunities, and the ability to leverage the expertise and networks of our local partners.
4. Rigorous Risk Management
Finally, we have implemented a comprehensive risk management framework to identify, assess, and mitigate the risks associated with global real estate investing. This includes a thorough due diligence process, the use of hedging strategies to manage currency and interest rate risks, and the ongoing monitoring and stress-testing of our portfolio.
Warm Springs Capital's Global Platform and Network of Relationships
To support our global investment strategy, Warm Springs Capital has built a world-class platform and network of relationships that enables us to identify and execute on unique investment opportunities around the world. Our team of over 100 investment professionals is based in 10 offices across North America, Europe, and Asia, providing us with on-the-ground presence and local market expertise.
In addition, we have developed a network of over 500 relationships with local operators, developers, and investors in key markets around the world. These relationships provide us with access to off-market opportunities, proprietary market intelligence, and the ability to create value through active asset management and development.
Case Study: Warm Springs Capital's Investment in Logistic Properties in Mexico
To illustrate our approach to global real estate investing, consider our recent investment in a portfolio of logistics properties in Mexico. Our analysis of the Mexican market identified strong demand drivers for logistics properties, including the growth of e-commerce, the increasing integration of Mexico into global supply chains, and the country's favorable demographic profile.
To execute on this opportunity, we partnered with a leading local developer and operator with a proven track record of delivering high-quality logistics properties. We invested $250 million in a portfolio of six properties across key logistics markets in Mexico, including Mexico City, Guadalajara, and Monterrey.
Since closing the investment in 2018, we have worked closely with our local partner to enhance the value of the portfolio through active asset management and development. This has included the implementation of energy-efficient technologies, the expansion of two properties to meet growing tenant demand, and the successful leasing of all six properties to high-quality tenants.
As a result of these efforts, the portfolio has achieved a current occupancy rate of 98% and has generated an internal rate of return of 21% since inception, exceeding our initial underwriting expectations.
Conclusion
The globalization of real estate investing presents significant opportunities for investors who are able to navigate the complexities and risks of this dynamic landscape. At Warm Springs Capital, we believe that our diversified, global investment strategy, our world-class platform and network of relationships, and our rigorous approach to risk management position us well to capitalize on these opportunities and deliver attractive returns for our investors.
As we look to the future, we remain committed to staying at the forefront of this rapidly evolving market and to driving long-term value creation for our stakeholders. Through our ongoing investments in research and analytics, our deep market expertise, and our partnerships with best-in-class operators and developers, we are well-positioned to continue building a diversified, global portfolio that generates strong risk-adjusted returns for our investors.
