Bullish on Infrastructure REITS?

[theraven]

Colony Capital recently sold a $6B warehouse portfolio to Blackstone. Colony Capital is trying to sell 90% of its real estate portfolio.

What is the logic here? Is building/operating infrastructure ex) data centers/cell towers more risk adverse? Lower IRRs and low cap rate when compared to industrial warehouses/techonological storage facilities?

 

Great to hear some thoughts on this.

 

 

 

Best,

theraven

[Lev]

First, Colony was able to opportunistically time the sale of their industrial portfolio. Growing e-commerce tailwinds continue to puff up industrial valuations, so now was a great time to sell. On top of that, now might be perceived as a good time to exit an historically long-winded bull market. So there were two secular forces in favor of a big sale at Colony: 1) industrial has been crushing it for the last decade, and 2) real estate in general is beggining to feel a bit toppy to many institutional investors.

And fortunately for Colony, there are a lot of buyers who were able to bid up that portfolio. The ultimate buyer, BREIT, is blackstone’s REIT vehicle which can stomach much lower returns than its op funds.

Regarding the cell towers / data centers. From a 20,000 foot perspective, demand for data centers and cell towers likely won’t stop anytime soon. So, if you’re worried we’re at the top of the real estate cycle yet want to make a defensive investment, cell towers and data centers certainly makes sense. As one anecdotal data point, there is not enough existing 4G LTE bandwidth for the broad adoption of self-driving cars. Couple that with the exponential demands of the growing Internet-of-Things (even your fridge will have a wifi chip), it’s pretty clear that we’ll continue to need these facilities.

Wrapping it up. If you’re Colony and have just killed it on an industrial investment, a logical exit to protect that capital would certainly be to plow the proceeds into a sector that shows no signs of slowing any time soon. And data centers / cell towers certainly fit the bill.

[Author]

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