Location, Location
The TH Real Estate Real Property Fund invests in real estate in supply-constrained areas across the U.S. and favors high-occupancy properties that have investment-grade tenants, said Cunniff. “It’s generally a safer, more liquid part of the market,” he said. The fund has been buying industrial properties and putting slightly less emphasis on office properties, which require high capital expenditures to modernize and keep attractive, he said.
The leverage for the TH fund averages around 10 percent, compared with typical leverage ratios of approximately 30 percent for other core real estate strategies in the U.S. “You have to have some leverage in this investment universe,” Cunniff said, because the purchases of commercial properties, unlike residential properties, include the building and the debt.
Nuveen saw a 50 percent rise in DCIO (defined-contribution, investment-only) sales of its Lifecycle Funds during the first three quarters of 2018, compared with all of 2017, said Brendan McCarthy, DCIO national sales director at Nuveen. “We attribute a lot of this to the inclusion of direct real estate in the portfolio,” he said. “Real estate tends to be an asset class that end users understand.” The Lifecycle Funds also make direct real estate, traditionally an institutional-only asset, accessible to mom and pop investors, he said.
McCarthy and Cunniff visit individual properties held in the TH Real Estate Real Property Fund. The TIAA-CREF Lifecycle Funds’ real estate strategy is new, there are many inquiries about it and “we want to be fully prepared for that,” said Cunniff.