With 2023 in the rearview mirror, Nuveen Real Estate is taking stock of their successes and gearing up for a productive 2024.
In June, The Real Deal learned about the firm’s debt financing strategy amidst disrupted capital markets from Jack Gay, Global Head of Commercial Real Estate Debt. Then in October, we spoke with Pamela West, Senior Portfolio Manager & Nadir Settles, Global Head of Impact Investing at Nuveen Real Estate, about how the firm’s merger with TIAA made it one of the nation’s largest institutional managers in the affordable housing space. To close out the year, we caught up with Carly Tripp, Global Chief Investment Officer and Head of Nuveen Real Estate Investments, to get an insider’s perspective on what worked in 2023, what didn’t, and the firm’s real estate outlook for the new year.
Smart Investing During Tough Times
“2023 was a challenging year,” recalls Tripp. “We were in the thick of a rate cycle, and there were still questions around inflation and the consumer.” There was also the looming threat of a banking crisis, which cast a pall over markets despite never fully materializing. Still, as Tripp says, “Real estate was pretty much gridlocked, with activity down 70%.”
In the face of economic headwinds, Nuveen Real Estate focused on tightening up operational performance while expanding into sub-sectors in which they have long-term confidence. One example of the latter was the firm’s acquisition of a large portfolio of affordable housing assets from Omni Holding Company in May, which increased the value of Nuveen’s affordable AUM to $6.4 billion. The firm also moved into the self-storage space with an investment in Kurt O’Brien’s MyPlace, a vertically integrated self-storage platform.
“We used the moment to expand strategically, while also keeping our powder dry,” says Tripp.
Affordable housing has continued to be a strong performer for the firm. Nuveen Real Estate launched an affordable housing platform in 2022 that continues to foster healthier communities through investments in affordable housing that simultaneously address some of our most pressing social and environmental challenges. This in turn has continued to expand into the space ever since. “We think of affordable housing as being non-cyclical because it has really strong regulatory support at the state and federal levels,” says Tripp, “and I think that there will continue to be increased interest from investors in that sector.” Along with self-storage and certain types of medical office development, affordable housing investment will continue to be a core part of Nuveen Real Estate’s strategy moving into 2024 and beyond.
Finding Confidence in an Unlikely Sector
Tripp and her team at Nuveen Real Estate are looking to a potentially surprising sector for growth in the new year. “I expect retail to have a renaissance,” says Tripp, who outlined the lessons she and her team learned from the sector’s performance during the pandemic. Even before COVID-19 caused a major shift in how Americans used retail spaces, the sector was overbuilt, particularly when it came to large format retail like malls. “The US had five times more retail than any other industrialized nation,” explains Tripp. “People would drive 30 miles and spend a day at a mall, but that’s just not how consumers want to shop now.”
While the pandemic caused a major shift in retail absorption, it essentially just revealed and accelerated underlying shifts in the sector. “Retail was disrupted by E-commerce,” says Tripp, “but pure play E-commerce is not profitable. Customer retention is proven to be much stickier if you have a physical store.” So, while over 100 million square feet of retail has been positioned for other uses in the last five years, there’s still plenty of room for physical retail as part of a hybrid model like the successful By Online, Pick Up in Store system that was popularized during the pandemic.
Two other factors are giving Tripp faith in the retail sector going into 2024. One is the stickiness of necessity-based retail like grocery stores, which are a major factor in making retail the best performing sector in the US in 2023 despite major repositioning. The other is what she refers to as a “demographic wave” washing over the retail sector thanks to Millennials and Gen Zers aging into the prime spending cohorts. By 2025, Millennials will make up 31.3% of the workforce, and Gen Z will make up another 29.1%. As these large cohorts enter their prime spending years, Tripp
“expects those demographics to support spending in the same way Millennials have supported housing over the last decade.”
Greater Support for Markets Means More Opportunity
One of the major lessons that Tripp learned in 2023 was drawn from an event that didn’t happen. When three small banks failed in March, many worried they were witnessing the opening act of a banking crisis. But quick action from the Fed mitigated the fallout, and the crisis never emerged. Between this would-be crisis and the fiscal stimulus deployed during COVID, Tripp believes that “there’s less tolerance for severe corrections in the market” from central banks in the US and abroad. So, while a major factor that suppressed real estate activity in 2023 was uncertainty, moving forward Tripp anticipates a higher degree of confidence in capital markets opening new deals.
“Overall, I think that the private sector, the public sector, even consumers and individual investors are just a lot more supportive of markets today,” says Tripp, who believes that recent events have taught us that, while cycles will continue, they won’t be as severe. “And that’s good for real estate.”
Tripp is confident that Nuveen Real Estate’s conservative position in 2023 put them in a great position to build on their strengths in the new year. “Our specialty lies in the fact that we find value in spite of market cycles, we don’t wait for the market to come to us,” says Tripp. “I expect our strategic initiatives to come to fruition in 2024.”