Disintermediation in Real Estate: Who Will Survive the Shift?

dis·in·ter·me·di·a·tion (noun): The reduction in the use of intermediaries between producers and consumers.

---- Historical example ----

Before the internet, information was intermediated.

Curious about a political scandal?
Buy a newspaper.

Want the latest business trends?
Wait for next month’s magazine.

Looking up someone’s number?
Grab a phone book.

Publishers controlled the flow of information and were paid handsomely for it.

Then the internet happened.

The bottleneck broke, and middlemen suffocated.

[Publishing jobs have declined by 70% since 2000.]

---- Why this matters ----

The top 50 real estate investment managers control about $3.5 trillion in assets.

Today’s dominant trend?
The big are getting bigger. Size is obviously a differentiator.

What differentiates everyone else?
If you can build, reposition or manage a building, you can add discrete value, which is becoming significantly more precious.

Today’s investment managers have evolved with the industry. Blackstone, for example, started as an LBO/M&A advisor, migrated into traditional private equity fund management, then expanded into real estate.

We find six thematic “origin stories”, which can meaningfully affect relative strengths and weaknesses.

Real estate investment manager backgrounds:

1. Banks (e.g., J.P. Morgan)
2. Family offices (e.g., TPG)
3. Insurance / pension funds (e.g., PGIM)
4. Investment managers (e.g., Clarion)
5. Private equity (e.g., KKR)
6. Operators (e.g., Greystar)

Who’s best positioned to thrive?
Mega-managers and operators.

For everyone else...
In 20 years, will some allocators of real estate capital look like publishers?

Obviously, today’s investment managers have evolved from their original DNA, and many allocators have added operator-like expertise in areas.

Where you began won’t likely determine where you end, but as fund flows abate, the bigs get bigger, and competition mounts, expect to see more consolidation. The race is on.

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