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Interviews

Infrastructure vs. Real Estate Investing

Todd Briddell, Chief Executive Officer and Chief Investment Officer of CenterSquare Investment Management
October 30, 2015

Todd Briddell, Chief Executive Officer and Chief Investment Officer of CenterSquare Investment Management, talks about the growth in infrastructure investing

Overview

Executive Summary

Infrastructure is developing into a mainstream long-term investment category with many commonalities with real estate investments, says Todd Briddell, President and CEO of CenterSquare Investment Management. Both infrastructure and real estate are long-duration assets that produce economic rent, provide diversification, and generate yield, Briddell said. According to Briddell, infrastructure investing is becoming more widespread. Over the prior three decades, infrastructure investment had been the domain of large pension funds and sovereign wealth funds that sought yield and inflation protection. However, similar investments are also available more broadly; for example, CenterSquare has identified several hundred publicly traded companies that share the characteristics of infrastructure investments. Adding to the investible universe, recently, infrastructure REITs have begun to go public; cell tower companies have elected REIT status; and master limited partnerships own pipeline assets in the United States. Overall, Briddell sees a convergence of real estate, infrastructure, and to a lesser extent, timber and agriculture, into an investment category of income-producing real assets.

Transcript

Zell/Lurie: There's more and more talk among investors about infrastructure investing. How close or different from real estate do you see this sector? How do you envision it developing over time? Or do you think it's a flash in the pan that we won't be talking about five or ten years from now? Todd Briddell: We'll definitely see infrastructure develop as a long-term asset, and the reason is, frankly, it is a long-term asset. So when we look at infrastructure and we compare it to real estate, we see incredible commonalities. And we believe that the real estate and the infrastructure worlds are beginning to collide in a number of interesting ways. So, why are they similar? And then I'll tell you about why they're colliding. They're similar because they have long duration assets that have enduring value. They both generate economic rent. Neither real estate nor infrastructure is in the operating business or in the selling of widgets business. So very similar characteristics. And from a diversification from an overall kind of traditional 60/40 investment portfolio, both provide really valuable diversification. And then lastly because of those economic rents that they generate, they're able to generate yield. So why do people like real estate? People like real estate because of the enduring value, because it's got inflation protection, because it generates yield and diversification; infrastructure assets represents the same type of characteristics. Now for the last 20 or 30 years, the area of investing in infrastructure has really been the dominion of the largest pension funds and sovereign wealth groups around the world. You only need to think about the Middle East sovereigns or Canada, Australia, etc. Those investors have basically been investing in infrastructure because of those characteristics. What we're doing in our particular strategy is finding publicly traded companies. And we've identified about 350 publicly traded companies that have those same characteristics, where they're not really running operating businesses as much as they're owning large, enduring assets that they can rent through economic rents or tolling arrangements, etc. I think the last thing is: Why are these worlds converging? Earlier this year in 2015, we saw the first infrastructure REIT go public. This is a company that is owning transmission lines in the state of Texas, formed as a REIT. Secondly, you can look at the Master Limited Partnership structure which owns pipeline and energy pipeline assets in the United States—that MLP structure is also very similar to the REIT structure. Third, if you look at tower companies and the communication companies—there are a couple companies that are REITs that own tower companies—they're really communication/infrastructure companies. So the worlds are colliding. And the last thing I would tell you is more anecdotal. [With] the consultants and the pension fund investment professionals that we work with on a day-to-day basis, we're noticing that their business cards are changing. And their business cards used to say, "Real Estate Consultant" or "Real Estate Professional" or "Analyst," and now they say, "Real Asset Consultant" or "Real Asset Portfolio Manager." And what that means is that this space of real assets is being redefined. Real assets basically represent real estate, infrastructure, and to a smaller extent, but a growing extent, timber, agriculture and things along those lines—but income-producing real assets.

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