Companies in Core Real Estate Sectors Must Innovate in Line with New Asset Classes

Companies within core real estate sectors need to innovate in much the same way that companies in new asset classes are doing, according to Mary Hogan Preusse, founder and principal of Sturgis Partners LLC.

Speaking Oct. 27 during an NYU Schack Equity REIT Leadership Series webinar, Preusse described the declining share of core real estate within real estate benchmarks as “quite shocking.”

Core real estate sectors “need to innovate within their boxes…they have great teams, they have technological expertise. There are things that can be done,” she said. “We need bigger companies that we can bet on in the core space.”

Preusse also said there are likely to be some interesting buying opportunities among the conventional real estate asset classes, however, “we need some mark to market in private real estate to help people feel confident about public real estate relative valuations. I don’t know when we’re going to get that, but I’d like to think we’d get it soon—there’s so much capital sitting on the sidelines.”

Meanwhile, Preusse said the REIT industry is “one of the most improved” when it comes to focusing on diversity. She also described California’s move to mandate the appointment of women to public boards as a “blunt instrument that’s effective in getting people to pay attention to the fact that more diversity in the board room can lead to more diversity in senior management.”

Of the three components of E, S, and G, diversity within the social component is the one issue that most needs to be worked on in the real estate industry today, Preusse said.

Preusse also commented on the impact of the shift to work from home on the office sector. She said she expects a hybrid model to emerge, with collaborative work done in the office and other work performed elsewhere. Flexible office space providers will play a role in this new dynamic going forward, she said.