Christie Vuong/The Globe and Mail
The eve of the financial crisis was not an auspicious time to launch a real estate fund. Yet Jeffrey Olin and his partner, Frank Mayer, seeded their Vision Opportunity family of funds amid market jitters in mid-2008. In a way, each of their funds is a two-in-one—focusing on property but also pursuing a long-short, hedge fund strategy. With the later addition of Andrew Moffs, the trio has outpaced real estate and long-short indexes over the past decade and grown the firm’s assets to $550 million. We asked Olin, 58, what opportunities he sees, including refrigerated warehouse operator Americold Realty Trust, and why he shorts U.S. hotel real estate investment trusts (REITs).
Why did you set up your Vision Opportunity funds during a tough period?
It was not deliberate. We started the first fund in July 2008. There were signs that the credit market was not getting better, but the crisis didn’t hit until autumn, with the collapse of Lehman Brothers. It was a brutal time to raise money, but we had conviction. I had been an investment banker focused on real estate, while Frank was a top-ranked analyst in the sector. We saw inefficiencies in the pricing of publicly traded North American real estate securities, and that never went away. We could buy real estate cheaper in the stock market—that is, at a discount to net asset value—than in the property market. That is at the core of what we do.
How has your fund managed to beat indexes?
We seek to outperform, but our goal is also to have lower volatility than the indexes. We’ve had zero negative years, and the funds have benefited from 18 takeovers. But it’s also a strategy for all seasons because we can short. We don’t have to be bulls for real estate.
REITs were hot in 2019 amid falling interest rates. Where do you see opportunities this year?
We are invested in two major themes. One is rental apartments on both sides of the border. They are benefiting from millennials who are getting married, are having children later and want to live in urban centres, as well as demand from immigrants. The leading edge of the baby boomers is also turning 75 in 2021, and seniors are transitioning from houses to apartments. The second is industrial real estate, as e-commerce becomes a growing percentage of total retail sales. The pain in retail helps industrial warehousing. We think it is still early days.
Why are you upbeat on Americold Realty Trust?
Americold provides temperature-controlled warehouses for perishable foods and is the largest publicly listed player on the planet. It’s one of the few real estate investments with a moat. It’s hard to compete against this company because it’s very expensive to build these facilities, and it is an operationally intensive business. If you are not a good operator, you are going to lose money. It’s different from a passive warehouse where you rent space. Americold has also been making acquisitions, including Nova Cold Logistics recently in Canada.
What are you shorting?
We are bearish on any sector where there is excess supply relative to demand. Retail is a poster child for that because bricks-and-mortar stores have been hurt by a shift to e-commerce. Most of our short positions in retail are paired trades—going long on one stock and shorting another. We are also shorting U.S. hotel REITs, such as RLJ Lodging Trust. We’re cautious on hotel investments. You can do the best real estate deal in the world for a hotel, but you also need to be a good manager. Today, hotel REITs are reducing guidance because of too much supply, caution about the economy and competition from Airbnb.
Aging baby boomers are seeking income. What real estate investments could meet that need?
The rental residential space would be fitting. We like Canadian Apartment Properties REIT, which has the largest exposure to rental units in Toronto, and Sienna Senior Living, a provider of nursing and retirement homes. BSR REIT operates apartments in the U.S. Sunbelt, while Tricon Capital Group also has a significant portion of single-family rentals in that region. Those companies are well-managed, are highly aligned with shareholders and are core holdings for us.