Alternative assets increasing in popularity amidst rising inflation

Experts say that commercial real estate offers some of the best risk-adjusted upside potential in today’s pricey, volatile markets

Nick Bakish put his feet on a coffee table in the lobby of a posh New Orleans Hotel, laid back and took advantage of a brief break in his schedule. “Investment conferences attract some of the world’s hardest working people,” said Bakish, a Montreal impact investor who was in Louisiana sharing ideas as a speaker at a family office conference. “Sixteen hours days are normal. However, with the opportunities in today’s markets enthusiasm is particularly high.”

“Office properties have been hit hard by the COVID crisis. Many offer excellent risk-adjusted upside potential.”

Bakish, a partner at Group RMC, a real estate co-investment firm that focuses on underappreciated office properties, is not kidding. While the COVID and Ukraine crises have spurred recent volatility, investors in stocks, bonds, and real estate have done exceptionally well during the past decade. These trends, coupled with a desire by many clients to find inflation hedges, have driven increasing interest in alternative investments, such as gold, bitcoin, and Bakish’s preferred vehicle: commercial real estate.

“Some say current markets are in “everything bubble,”” says Bakish. “However, office properties in many areas have been hit hard by the COVID crisis, and many offer the excellent risk-adjusted upside that the long term investors that we work with are looking for.”

The rise of alternative asset classes

Barry Schwartz, a veteran investor, and former president of Claridge Properties, who is currently collaborating with Bakish says that many high-net-worth investors that he knows have boosted their allocations to alternative investments from 2-3% of their portfolios a couple of decades back to 10% these days and sometimes even more.

Group RMC, and it partners, who currently own and operate approximately 21 million square feet of commercial real estate, primarily in the mid-western and southern United States were quick to take advantage of the trend. This strategy requires patience. “Almost all sectors of society today seem focused on immediate pleasure and short-term results,” said Schwartz. “However, Group RMC never chases momentum. The focus is always on income producing, high quality buildings that are available at massive discounts to replacement costs, in non-gateway markets that are far from crowds. Placing large down-payments, and operating on modest leverage ratios, ensures that the fund does not becomes a forced seller if markets hit rough patches.”

Nick Bakish is a Partner at Group RMC, a real estate co-investment firm that focuses on underappreciated office properties

The strategy tends to attract sophisticated, long-term, and often contrarian thinkers. “Alternative investments are a loosely defined category that ranges from private equity, to hedge funds, precious metals, and commercial real estate,” said Schwartz. “However much of the recent interest has been driven by younger and tech savvy investors who favor riskier options such as marijuana stocks and crypto currencies.”

Smaller markets offer bigger upside

According to Bakish, Group RMC’s strategy of staying off the beaten path has paid big dividends in recent years. “We have done deals with pension plans, major players such as Blackstone and are the largest commercial real estate owners in many of the markets that we operate in,” said Bakish.

“However, our strategies also offer innovative vehicles that enable Canadians to get exposure to the market through a local product that saves them the work of completing U.S. tax returns on their earnings each year.” Accredited investors can participate directly as partners in individual properties, or through targeted funds which are available to accredited investors through their advisors that invest in a diversified portfolio.

“The focus is always on income-producing, high-quality buildings that are available at massive discounts to replacement costs.”

“The COVID crisis, which is now winding down, created considerable uncertainty regarding developments in major U.S. real estate markets ranging from New York, to Boston, and San Francisco,” says Bakish. “This brought a rush of forced sellers into the market. “However, during that time, we made a key acquisition of a beautiful office tower asset off the beaten path in Jacksonville Florida, a decision which is already generating considerable upside.”

Groupe RMC will be conducting a presentation to high-net-worth investors on April 14, 2022, at the Saint-James Club. Call Barry Schwartz at (514) 947-0081 for more information.