Firm's leaders explain how labour-intensive strategy helps fund deliver returns over the long term
This article was produced in partnership with Hazelview Investments.
For real estate investment firm Hazelview Investments (“Hazelview”), every asset acquisition is viewed through a value-add lens, as an opportunity to grow the worth of a property by applying some good old-fashion elbow grease. Hazelview’s value-add strategy is highly specialized and labour-intensive. When applied to real estate assets, this strategy offers investors a potent combination of income and capital appreciation.
This value-add approach is a pillar of Hazelview’s Four Quadrant Global Real Estate Partners fund (“4Q”). 4Q combines a range of investment strategies into a single globally diversified integrated real estate investment solution, which offers access to real estate private equity investments and debt, while delivering income and liquidity through publicly traded equity and debt. 4Q’s value-add component allows the fund to generate price gains through active management that grows a property’s net operating income by renovating, repositioning, and leasing assets.
“We're trying to create value and not necessarily just buy core product,” says CEO Ugo Bizzarri. “We want to buy an asset whether it's privately, publicly, or through debt, and roll up our sleeves to create that value within that investment class.”
Since its inception 10 years ago, 4Q has delivered an average annualized net rate of return of 8.6%. By investing both publicly and privately in real estate debt and equity, 4Q minimizes volatility, while maximizing the total return for investors. The strategy also protects investors because the income generated through rents and leases provide downside protection, due to the lower inherent volatility in quality property assets with strong rental and leasing income.
“Ultimately, the goal is to create a better product that in turn generates higher rents,” says Corrado Russo, Hazelview’s Senior Managing Director, Investments & Global Head of Securities. “Maybe it needs to be better capitalized. It may need to be rezoned or densified. You may have the opportunity to add more square footage whether it's on top or on adjacent land. It may be that you need better credit quality tenants,” Russo says. “So, there's always something that you're doing (to increase value).”
To further reduce risk for the 4Q fund, Hazelview has diversified across property sectors and geographies, capitalizing on pricing inefficiencies in different markets around the world. The fund is invested across all property types including residential, office, industrial, retail, healthcare, hotels, and self-storage. These investments are located or listed worldwide within industrialized locations such as the U.S., Canada, New Zealand, Australia, Singapore, Japan, Hong Kong, South Africa, Western Europe, and the UK.
“It allows you to have a more diversified portfolio and it allows you to sort of hunt in different areas and take advantage of all the different availability of cash flow streams,” says Russo. “At the end of the day, investing in real estate is about accessing the underlying stable cash flow stream through contractual rent obligations that tenants pay and the ability to add value to that real estate. Being able to invest and access that cash flow in different facets is a real benefit to investors.”
Both Russo and Bizzarri give full credit for the fund’s success to the 4Q team, which has been structured with subject matter experts across the four quadrants that represent the fund’s focus.
“It's that value-add and the core competency of the (Hazelview) team to be able to deliver on that value-add that distinguishes us from others,” says Russo. “That's what allows us to continue to deliver those returns over the long term.”