Why are our biggest tech companies and elite universities investing so much in real estate today?
Google just announced it is investing $1B in Bay Area housing. That comes on top of several years of major schools diverting much of their asset allocation to real estate. What are they doing? What’s driving them? What does it mean for your personal investment portfolio?
Google has been on a massive real estate buying spree over the past couple of years. They now seem to have made $1B the minimum benchmark for anything they buy and do.
Following some substantial real estate purchases in New York, Google has now pledged $1B for developing housing in the San Francisco Bay Area. This includes rezoning almost $1B worth of their own commercial and office space to being used for residential real estate, and plan to facilitate the building of 15,000 new homes in the area.
Google is not the only tech company making these moves either. Amazon’s Alexa Fund recently participated in a multi-million dollar funding round for a smart home builder. Facebook and Microsoft have both pledged or recently participated in $500M projects to develop more affordable housing.
College Endowment Funds
Top schools have recently made major pivots with their massive endowment funds, effectively making them more real estate businesses who just happen to have schools and students as some of their tenants.
In 2016, Harvard’s head of real estate was paid nearly $24M, making him the endowment fund’s highest paid employee. Harvard then spun off $3.4B of its direct real estate investments to be managed by Bain. At the end of 2018, Harvard agreed to an almost $1B deal with Blackstone for its warehouses.
Harvard has increased their asset allocation to real estate, which now exceeds their investments in private equity (which may also include real estate). Yale and Stanford aren’t far behind.
Put simply, these are the top drivers that are forcing big tech and big endowments to invest more in real estate.
- Controlling their own labor costs
- Return on investment
- Portfolio diversification
- Residual income
- Growth and appreciation
- Tax benefits
If the smartest minds and funds are redirecting so much of their wealth into real estate, it’s worth taking note of. Investing in these companies is probably not the answer for getting more real estate in your portfolio, there is just too much else going on there. Though you can copy their moves, and do it better. You are probably not going to go out and buy a Manhattan or San Fran apartment building yourself tomorrow. The returns would be negligible due to the current high prices anyway. Though you can participate in better markets and higher return/lower risk real estate assets in more affordable destinations through partnerships and syndications.
How will you do it?