By Rebecca A. Clay
The Real Estate Luminaries Series is the year’s highlight for the Steers Center for Global Real Estate at Georgetown’s McDonough School of Business. With support from lead sponsor HFF and contributing sponsor CRE Finance Council, the event brings together students, alumni, and others to honor leading real estate figures. This year’s event on April 19 was a little different, said Robert H. Steers (B’75, P’06, P’08, P’10), who chairs the center’s executive committee.
“Tonight is the first Luminaries session where technological, demographic, and cultural shifts are affecting real estate and society,” said Steers.
From Struggle to the S&P 500
Debra A. Cafaro, chairman and CEO, Ventas, Inc., described how a “working-class girl” from Pittsburgh, who never dreamed of being a businessperson, transformed Ventas, Inc., into an S&P 500 company.
When Cafaro came on board in 1999, the company was struggling, with just $200 million in market capitalization. The market capitalization grew to a peak of $24 billion, with a compound annual total shareholder return of more than 24 percent since 2000. Today, the real estate investment trust (REIT) owns over 1,200 health care, life science, and senior-living properties in North America and the United Kingdom.
“The growth has been really extraordinary because we found ourselves in a sector that had tremendous opportunity that was completely untapped,” said Cafaro, predicting that health care will eventually become the largest REIT sector. “No one was really doing anything, and we had the vision and the passion.”
One key strategy has been preparing for “tailwinds” and taking advantage of “headwinds,” said Cafaro. Just before the financial crisis, for instance, she made the difficult decision to shift from a growth mindset to risk management.
“We stopped buying; we started selling,” said Cafaro.
The Affordable Care Act has been a boon for Ventas’ customers, but the inconsistency of U.S. health care policy represented by efforts to weaken the law has prompted Ventas to diversify into the more reliable private-pay market.
“I believe in a diversified business model,” said Cafaro. “I like the idea of having things that will offset each other because we know that they’re not all winners all the time.” Similarly, while the senior housing sector has become overbuilt in recent years, it’s poised to take off as the over 80 population—the nation’s fastest growing age group—becomes 20 percent of the population.
Matthew Cypher, Atara Kaufman Professor of Real Estate and director, Steers Center for Global Real Estate, invited three panelists to “talk about technology in a way that’s a little different than what we’re used to,” said Cypher.
Matt Barnard, co-founder and CEO, Plenty, explained how the company—which grows fruits and vegetables on vertical walls inside warehouses in simulated Mediterranean environments—couldn’t even exist without recent technological advances. Just a few years ago, he explained, artificial intelligence wasn’t sophisticated or reliable enough to ensure optimal plant health and growing efficiency. Similarly, the LED lights the plants depend on have become far more efficient and less costly.
“We would have had to spend 64 times more money seven years ago to buy the same light capacity,” said Barnard. “It’s the first time humanity has ever had the ability to fully control the environment.”
Barnard noted that Plenty’s approach uses 1 percent of the water and less than 1 percent of the land of traditional farming while producing as much as 350 times the yield. In addition to prolonged shelf life, he says the produce tastes incredible. His ultimate goal? Improving human health by making people want to—not have to—eat their vegetables.
“People say we need to give our kale a new name,” said Barnard. “They say, ‘I hate the stuff, but I love this.’”
Also, the needs of an increasingly technological society are creating opportunities, said Hossein Fateh, founder and CEO of CloudHQ, the data center provider. Fateh noted that email, social media, and other data now live in the cloud.
“Every few years something new comes along,” said Fateh, citing Instagram and other social media applications as one example. “When I first talked to Facebook, I thought, ‘How can a social media company need two megawatts of servers?’ Now they need 100 megawatts—in each region. Next up? Driverless cars.”
Noting that he had just negotiated a 72 megawatt lease mostly via WhatsApp, Fateh predicted that society would become increasingly cellphone-based.
“In China, you can go out on a date and only carry your cell phone,” said Fateh. “In Japan, you can pay for a taxi by putting your cell phone in the center console and you’ve automatically paid. Even in developing nations, everything happens via cell phone. All those transactions are living in someone’s data center. “A data center has really become a class of real estate.”
Saleh Romeih (B’88), managing partner, SoftBank Vision Fund, described how technological innovation motivated him to change his life. After a career in banking, he reconnected at age 49 with a former boss, Rajeev Misra, and now helps the Vision Fund invest in cutting-edge technology.
“The vision of Masayoshi Son, CEO of Softbank, is that the technological revolution is just beginning, with the advent of the Internet of Things and Singularity,” said Romeih.
Romeih explained how the Vision Fund looks for markets where technology has the potential to make a huge impact, and then seeks out entrepreneurs with vision and connects their companies with others in the fund’s portfolio. The ultimate goal is to democratize access to global networks and create a better experience or product for consumers. Take insurance, a traditionally capital intensive sector but one the fund is looking at closely. Technology could reduce inefficiencies in insurance, enabling consumers to buy cover directly without the need to go through brokers, or speed up the claims process while reducing fraud. Technology could also allow insurers to make pricing fairer and more transparent, so that someone like Romeih—who drives his car only once or twice a month—isn’t paying the same rate as a neighbor who drives to work every day.
“It has to be something that will change the life of people, change the experience for the better, and drive out inefficiencies,” said Romeih. “That’s where we’re headed.”