Recession Proof: Building a Defensible Portfolio and Doing Social Impact
Real estate investing is my calling and being able to impact lower income neighborhoods (in partnership with nonprofits and community organizations) has been an amazing experience that I can only be grateful for.
Since 2007 I have directly created over 50 jobs in three states across the USA (not to mention the indirect ways we have supported these communities). It doesn’t stop there, between the homeless families we have housed and the alpha we have captured- we have proven that it is possible to do good by doing well. I will admit, it is a little weird putting the two together in the same sentence but the data speaks for itself.
Having grown up in the ‘hood I find it extremely rewarding being able to apply the institutional framework I learned at Goldman [Sachs] to the neighborhoods I live in. And I still do.
The ability to scale both environmental and social impact in our community is work that actually matters. I feel our conscious capital approach to investing has been an amazing experience as we have catilyzed change in communities in California, Washington, and Michigan.
Let’s be very clear: we are not sacrificing return.
I find it puzzling as we have witnessed institutional funds write our business model off as they deem our risk adjusted returns to be too far out on the yield curve (compared to their portfolio holdings.) I feel bad for them. As we enter this next stage of the economic cycle, and we are subject to the whims of the current administration, I feel the most defensible strategy is to be invested in the top quartile of non-cyclical businesses. As we trend into this next stage of the economic cycle, our strategy will not only continue to outperform the market- we will thrive as we continue to capture alpha by being present in the most basic levels of Maslow’s heirsrchy of needs.
Class A housing is looking pretty gloomy. All the institutions that have flocked to primary markets are witnessing a larger outflow of turnover as millennials chase the new-NEW thing meanwhile concessions are making a come back in gateway markets. So how do we build a defensible portfolio that can both outperform and weather even the worst of the economic cycles?
The answer is to find a strategy that can capture alpha, all the while mitigating downside risk. We do this by rebuilding our inner cities. As a family office operator, I recall the lessons I slugged through prior to and during the Great Recession. As value driven/opportunistic investors, we exploit idiosyncratic opportunities which can add a significant amount of value by capitalizing on these tactical opportunities. Our social driven approach not only feels good, which is super important for longevity, it also captures alpha by putting food on our tables (farm to table preferred).
Long story short, I would be extremely worried about entering into risky assets like Class A/B housing at this stage of the cycle. While the economic narrative does not signal recession in the immediate turn, I feel we are witnessing a micro-paradigm shift as concessions pick up in the primary markets.
As we always tell our investors: Invest deep, think long, and stay strong. Stay humble my friends.
April 01, 2017 at 04:45PM
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