Real Estate is Dead; Long Live Real Assets

The past decade has seen a tremendous evolution in real estate asset classes. Categories like single-family rentals, data centers, and logistics have moved from the fringes to the mainstream while emerging niches gain investor interest.

But the biggest shift of all is happening at a higher level. Slowly, steadily, real estate as a category is being subsumed into something larger and—to many investors—more enticing: real assets.

This should not come as a surprise to anyone who reads our quarterly REIT earnings call reports, where firms like Blackstone, Brookfield, and Prologis are making hay well beyond the traditional confines of the real estate industry across energy, data, transportation, and other infrastructure. While this isn’t a new thing, the balance of power has clearly flipped: traditional real estate is no longer the darling it once was within the real assets universe. There are a host of downstream effects of that, but it’s safe to say that energy and data infrastructure are to investors today what value-add multifamily was throughout much of the 2010s.

Today’s letter will tackle the shift to real assets and what it means for the real estate industry, including:

• The scope of “real assets” as a category;
• Institutional shifts toward real assets;
• Tailwinds, including AI and energy demand;
• What all this means for real estate investors and developers.

The Realest of Assets

While the exact boundaries of “real assets” as a category differ somewhat depending on who is asked, most investors define it as “tangible alts”—alternative investments that take physical form. Typically, this includes:

• Traditional real estate;
• Infrastructure, including:
  • Transportation infrastructure (e.g., toll roads, airports)
  • Utilities (e.g., water treatment facilities, power plants, solar farms)
  • Energy infrastructure (e.g., pipelines, LNG terminals, transmission lines, batteries)
• Natural resources such as timberland, farms, and mines;
• Other tangible assets such as cell tower leases, cargo ships, water rights, classic cars, art, and wine.

For many large investors, many of the other types of real assets offer real estate’s benefit as an inflation hedge without its cyclicality. Infrastructure (e.g., regulated utilities and toll roads) and natural resources often have direct inflation pass-throughs or positive correlation with CPI, making them attractive for pension funds and insurers with long-dated, inflation-sensitive liabilities. During the 2022–2023 inflation spike, many infrastructure assets (toll roads, utilities, pipelines) saw cash flows grow due to inflation-linked contracts, insulating them from much of the pain that hit the real estate industry.

And while real estate cash flows are often cyclical, infrastructure concessions (e.g., 30-year toll road agreements) or power purchase agreements provide long-dated, contracted cash flows that are more bond-like, making them appealing to investors who want to plow large amounts of capital into relatively predictable assets.

And those tailwinds come before we even consider the macro implications of AI and electric vehicles driving demand for power generation and data infrastructure. We’ll get more into those tailwinds in the next section, but it’s safe to say the real assets boom is here and very real. Global private infrastructure AUM has increased fourfold over the past decade to $1.3 trillion, a remarkable CAGR of 20% on a very big number.

Infrastructure Everywhere

Real estate’s shift into real assets is driven by institutional investor demand. A recent Fidelity survey indicated that more than half of institutional investors are underinvested in real assets relative to their targets, and 1 in 5 institutions plan to increase real asset targets from where they are today. This means a tremendous amount of capital will need to be deployed into things that broadly fit under the “real assets” banner.

Given the investor demand, it’s not surprising that we find plenty of examples of traditional real estate firms going hard into real assets, particularly infrastructure.

Brookfield, for instance, has effectively rebranded itself as an infrastructure company. Of the six photos of assets on Brookfield Asset Management’s homepage, five of them are of various energy infrastructure. (Manhattan’s iconic Brookfield Place gets a single photo). And it’s not just Brookfield’s own infrastructure projects; the firm recently raised $1 billion to back smaller infrastructure companies. And logistics behemoth Prologis has increased its focus on solar power, EV charging infrastructure, and microgrids as the traditional logistics market cools.

The rush to back infrastructure projects isn’t just limited to firms with a long history in the sector like Brookfield. Top multifamily owner and developer Greystar launched an infrastructure initiative last year to make bets across data centers, clean energy, transportation, and more.

Asset managers are also making a bigger point to highlight their work beyond conventional real estate asset classes. Nuveen, for instance, is the largest manager of farmland assets worldwide with more than two million acres (about three Rhode Islands’ worth of agricultural land). And it’s not rare to see portfolios of cell tower leases, mining operations, water systems, and industrial commodities.

While the shift to real assets isn’t new, a few macro trends have led to its dramatic acceleration over the past few years:

1. AI, AI, AI. It’s impossible to talk about growing interest in infrastructure without discussing AI. In short, AI needs a lot of compute, compute requires a lot of data center infrastructure, and data center infrastructure requires a lot of power. This means significant capital is getting deployed across the stack: in data centers themselves as well as the power generation and transmission infrastructure needed to support them.
2. Geographic Diversification. While many institutional investors are skittish about conventional real estate in the developing world, they often see big infrastructure projects in emerging markets as more investable. As institutional investors seek to diversify beyond the US and Europe, they’re finding opportunities building power, water, broadband, transportation, and other infrastructure in developing economies.
3. ESG and Social Investing Mandates. While the Trump administration has led many US investors to pull back from ESG mandates and green energy projects, much of the capital driving interest in these projects today isn’t coming from the US—it’s from international pension, insurance, and sovereign funds, to whom green investing is as popular as ever.

There also just aren’t too many exciting places for institutional investors to write big checks. Office (broadly) is a disaster, institutional-grade multifamily is highly competitive, and — even if exciting— many emerging niches are too small or esoteric to be legible to the largest funds. A sizable portion of institutional interest in the broader “real assets” category is, no doubt, TINA.

Real Knowledge

Real estate as a category is not going anywhere. Many of the tailwinds that are driving the broader real assets boom still apply to conventional categories of real estate. Institutional investor interest in quality multifamily, retail, and industrial assets is here to stay.

But what it means to be a real estate investor—or have a career in real estate—is likely to shift as investor appetites broaden. Underwriting a public-private partnership, analyzing a power deal, or pricing a timber sale may be as relevant as running multifamily comps analysis or evaluating a rent roll.

There are few things in the market more representative of this shift than Georgetown University’s reinvented master’s program: the MSGRA, or Masters of Science in Global Real Assets. While a number of other universities have master’s programs in real estate development, Georgetown is the first to embrace the real assets moniker. Taking a hard look at Georgetown’s journey will help illustrate what—and why—the market is shifting.

“In early 2022 we held a strategic planning event with our alumni, and we determined the world is going in a real assets direction,” explained Matthew Cypher, Director of the Steers Center at Georgetown’s McDonough School of Business. Cypher is leading the charge to recreate the traditional real estate master’s program, re-forging it with a broader focus on real assets.

“We have alumni like Bob Steers and Sonny Kalsi looking across the globe to see where capital is headed,” added Cypher. With a broader focus on real assets—including infrastructure—Georgetown alums believed their alma mater’s graduates would have better career prospects under the real assets banner, and the reformulation would differentiate the school from more established programs.

But reformulating the degree program requires putting some definition and structure behind real assets as a concept, which isn’t always easy in a segment of the industry changing quickly.

“We view [real assets] as the raw materials and structures that drive economic growth,” explained Cypher. “It’s about infrastructure and real estate as well as  natural resources in the form of energy that will power our world.”

This scope includes the traditional domains of real estate as well as inroads into things like commodities, energy, and public-private partnerships in areas like power transmission, transportation, and digital connectivity. In practice, much of the fundamental learnings are the same. “The students are still doing a DCF analysis,” explained Cypher. “But they’re doing it on a cell tower lease portfolio or a water treatment facility.” Project finance and public policy are also important parts of the curriculum.

Cypher acknowledges that Georgetown’s early arrival to the real assets party created some challenges. “We struggled initially because fewer young people knew what a real asset was. We considered dropping it, but instead decided to double down.” Today demand for the program is growing, an indicator of surging interest in real assets.

“Data centers and AI are the leaders with these young people; it’s easy for them to get their heads around,” explained Cypher. “It’s a short step to power, energy, and the environment—they care about that. But we want to be pioneers in getting them excited about water, airports, and roads in addition to traditional real estate”

“Can we? I don’t know that, but I sure hope we can.”

While Georgetown was early among institutions to the real assets trend, there’s good reason to believe it won’t be the last. As investors re-allocate capital toward infrastructure, commodities, and energy, the support infrastructure that makes real estate tick—the service providers, the media, the conferences, the educational programs, and the technology—is likely to follow. In last quarter’s earnings call, Cushman & Wakefield made a point of highlighting their data center services business, a harbinger of things to come.

And it’s only a matter of time before “real assets” conceptually makes its way down the investor ladder. While I haven’t seen many infrastructure pitches focused on retail investors yet—there is, after all, more institutional investor demand than viable projects—I expect to see syndicators targeting retail investors for infrastructure plays sooner rather than later.

But if you’re a large real estate operator aiming to serve the biggest institutions, capabilities across the real asset spectrum are a must-have; ergo, Greystar’s foray into power and transportation. Investors want real assets, and there’s fortunes to be made in helping them achieve that—whether you’re the operator building or acquiring the assets or the people helping the operator figure out how to do it.

Georgetown is doing well positioning its students to do exactly that. It’s only a matter of time before other institutions—education, media, and operators themselves—get the memo.

—Brad Hargreaves