Many real estate investors, especially asset managers, invest in all four major types of assets as classified by ownership base and capital structure. Image: Admiral
Many real estate investors, especially asset managers, invest in all four major types of assets as classified by ownership base and capital structure. Image: Admiral

Real estate investment can be classified by its ownership base and its capital structure.

Imagine a simple two-by-two matrix. One axis will separate real estate investment into “public” and “private” tranches, and the other axis into debt and equity.

So public equity in real estate includes instruments such as REITs and real estate stocks, while private equity involves direct ownership of real estate assets.

On the debt side, public debt includes various notes and bonds issued by real estate companies while private debt includes various loans that institutional investors lend directly to real estate operators.

Many real estate investors, especially asset managers that typically invest on behalf of institutional clients, eventually invest in all four quadrants of the above matrix.

We think that this development is a good case of convergent evolution as these quadrants offer interesting synergies to investment managers.

The first synergy is with the investment process. An equity house focusing on real estate stocks and REITs would typically have gathered deep intelligence regarding these companies and probably have developed detailed financial models on many of them.

Thus, launching a bond fund creates synergy as the bulk of the fundamental research has been completed. The firm…