From CNBC · Diana Olick · · 2m
Bain Capital's Cotton navigates real estate's 'cocktail of disruption'
Ryan Cotton, who oversees eighteen billion dollars in real estate assets, explains how macro shocks every six months are reshaping where investors should put their money.
In brief
Ryan Cotton, who oversees eighteen billion dollars in real estate assets, explains how macro shocks every six months are reshaping where investors should put their money. Bain Capital's head of real estate says constant economic shocks are creating a 'cocktail of disruption' that is pushing investors away from…
Shocks every six months
Ryan Cotton, Bain Capital's head of real estate, says macro shocks have rocked the U.S.
Cotton oversees eighteen billion
Cotton oversees eighteen billion dollars of real estate assets under management. He says every time the market starts to recover, a new shock arrives, forcing another digestion period.
A confusing time to invest
Cotton describes the current environment as disorienting. Investors are rebaseing values, deals are being renegotiated at the last minute, transactions are being pulled, and volume is slowing down again.
“It's definitely a confusing and complicated time to be a real estate investor.”
The cocktail of disruption
Oversupply from low interest rates, shifting demand patterns, and artificial intelligence changing logistics, supply chains and offices have created what Cotton calls a cocktail of disruption in real estate.
“All those things put together are creating this cocktail of disruption in real estate.”
Long-term investor, not trader
Bain is a long-term investor, not a spot trader of assets. Cotton evaluates real estate over a ten-year period, looking at secular demand drivers that create the need for specific types of real estate.
Away from traditional sectors
Cotton's ten-year lens leads him away from office, retail and multifamily markets with out-migration or oversupply, and instead toward alternative and emerging classes of real estate.
“it leads you away from the office, it leads you away from the mall, it leads you candidly away from some multifamily markets.”
Super alternatives excite him most
Cotton is most excited by super alternatives: private airplane hangars and marinas for boats and yachts. As wealth concentrates and people get richer, they buy more toys, generating double-digit net operating income growth.
“Wealth is concentrating, and as people get richer, they buy more toys.”
Capital shifting away from traditional
Ten years ago, ninety-three percent of all real estate assets in the world were invested in multifamily, office, retail and industrial. Now that is down to eighty-two percent, with capital moving into peripheral asset classes.
Waiting for Mr. Market's optimism
Cotton leans on Benjamin Graham's thought experiment of Mr. Market to illustrate market swings. When Mr. Market is depressed, investors can tell him to get out of their office and focus on creating value until…
“When he's a bully, you can sell, and when he's depressed you can just tell him to get out of your office.”
The short version
Bain Capital's head of real estate says constant economic shocks are creating a 'cocktail of disruption' that is pushing investors away from traditional office, retail and multifamily properties toward alternative assets like senior housing, self-storage and private airplane hangars.
