The Five Pillars of Resiliency for Essential Housing

By James Hochman, Chief Financial Officer

Despite fiscal and monetary policy efforts to drive economic activity ever higher, the cyclical nature of economies and markets persists. The Great Financial Crisis, the dot-com bubble, and, of course, the COVID-19 pandemic all sent markets reeling, often leaving carnage in their wake.

For real estate investors, rebounding from these blows can be difficult. Price adjustments in real estate can’t occur quickly, so imbalances in supply and demand take longer to reach equilibrium. When disruptions occur, investors realize that the value of survivorship – the ability to play again and invest in the next cycle – is priceless.

The ability to bounce back lies at the heart of Grubb Properties’ emphasis on resilient locations. By focusing upfront on resilience, we build portfolios that weather the storms, softening – and sometimes even benefiting from – market volatility.

Informed by our decades of experience and extensive research capabilities, we have identified five core pillars of resiliency to select locations best equipped to handle inevitable downturns:

• Climate-related risk: Climate-related risk is a critical element in a resilient market strategy. While there are many factors that can be controlled, flooding, rising tides and wildfires are not among them. In addition to these “left tail” risks, climate issues can raise risk premia for borrowers through higher financing and insurance costs.
• Presence of state and/or federal government: The public sector often acts as a stabilizer during periods of economic contraction, serving as a countercyclical force that dampens the downside amplitude of normal economic cycles. Locations near governmental centers often benefit from this downside protection.
• Presence of public and well-capitalized private universities: Universities are national and historical magnets for innovation, creativity, and professional/personal reinvention. In addition to driving arts, culture, and innovation into neighborhoods, higher education institutions also tend to do well in economic downturns as jobseekers often choose to further their education in order to increase their employment options.
• Presence of a highly developed hospital and medical infrastructure: Medical infrastructure can be a permanent source of growth, particularly as the aging of the large Baby Boomer generation leads to greater demand for medical services. In addition, medical facilities serve as a magnet for young creative thinkers and problem-solvers.
• Presence of a developed public transportation/biking infrastructure: In addition to the environmental benefits of reducing automobile traffic, a strong alternative transportation infrastructure also provides for corridors of high-density land utilization with efficient concentrations of housing and employment. In addition, the elimination of the cost of car ownership reduces the cost of living, allowing for the reallocation of those resources.

These five pillars of resiliency have helped us generate strong risk-adjusted performance over numerous market cycles. When coupled with our proprietary cyclical analysis and our well-tested investment approach, we believe our resiliency pillars give us an edge when choosing development locations.

For more information about Grubb’s portfolio construction and research, download our new paper: The Durability of Resiliency-Focused Portfolios.