Ben Maslan

As a real estate investing specialist, Ben Maslan is in the right place. As a managing director at RCLCO Real Estate Advisors, he helps clients steer their property investments. During a fraught time like this, his insights on the economics of real estate are invaluable. “I look at where the winners and losers will be,” he said.

In 2007, he had a summer internship at a unit of Countrywide Securities—and saw firsthand the effects of overly risky strategies. Burdened by its subprime mortgage lending, the lender was on the brink of failure when it was sold to Bank of America. He later honed his expertise in economic and financial research and analysis at Cornerstone Research. He also has an MBA from the University of California, Los Angeles.

At RCLCO, he advises institutional investors and others on diverse real estate portfolios. His philosophy is that attractive, long-term real estate investment returns are accomplished by investing in what will be in demand, not necessarily what has been in demand.

CIO: What actionable thing have you learned over the course of your career that has proven itself this year?

Maslan: Over the course of my career, I’ve learned that, while it is prudent to be data-driven, patient, and cautious, it’s important to be aggressive for high conviction themes and strike when an opportunity presents itself. This has really played out during the past six months, where the windows of opportunity evaporated quickly for certain investments, as the public equity markets rebounded faster than most market participants expected during the second quarter.

We particularly saw this manifest itself during March, where the public equity markets were at their trough, and securities could be purchased for pennies on the dollar as investors needed to liquidate them to meet margin calls. By April, equity prices had begun to rebound, and margin calls declined. Being able to move quickly, and having clients that are able to respond to opportunities at the speed of the market, enabled our clients to invest in opportunities caused by temporary dislocations.

Leaning into high conviction themes, rather than simply mimicking the market, has been a hallmark of our approach to investing in real estate. This has manifested itself in our recommended asset allocation strategies, an overweighting of residential real estate, and underweighting retail properties, which should result in accretive performance as we come out of the current crisis.

CIO: What investments (specific securities or sectors) look good to you now? And why?

Maslan: We exclusively focus on the real estate sector. Within real estate broadly, real estate debt continues to be an attractive space, as the coronavirus-driven crisis has driven stricter lending standards and reduced liquidity across property types.  This has created an opportunity for private lenders to step in and achieve equity-like returns, but with a debt risk profile due to seniority within the capital stack. Specific areas of opportunity include subordinated debt positions within operating properties, and senior positions for transitional and construction loans.

The current crisis will likely also lead to additional demand for housing renter-ship options, as the cost of homeownership continues to increase (despite declines in interest rates), and consumer balance sheets and accessibility to credit continue to deteriorate. Within the rental housing sector, detached single family rental homes have performed well during the current crisis, and will likely continue to do so going forward.

Single family rental homes capitalize on increasing demand for renter-ship. Second, they capitalize on demographic tailwinds resulting from increased family formations within the Millennial cohort. Third, since detached homes are often located in suburban settings, they capitalize on coronavirus-driven changes to demand, where tenants are looking for more space, both to distance themselves from their neighbors and telecommute with greater comfort. Lastly, even leading into the crisis, there was an undersupply of new homes, especially at lower price points, compared to new household formations.

CIO: What ones don’t? And why?

Maslan: Retail and office properties have been getting a lot of media attention as being two property types that are left behind as a result of the crisis, and with good reason. The coronavirus outbreak has resulted in enormous losses and has exacerbated shifts in consumer demand away from brick and mortar retail and toward e-commerce. Although retail sales have risen from April lows, sales and rent collections remain well below pre-crisis levels, and the pandemic has exacerbated many of the secular trends the sector was already experiencing.

Thanks to long-term leases, office fundamentals have been relatively resilient to date, but will likely deteriorate as company distress and bankruptcies begin to emerge. Longer term, the use of office faces a host of questions which likely lead to major winners and losers: will employees continue to telecommute at elevated rates; will office users demand greater distancing from their coworkers; will companies follow their employees to the suburbs; and will tenants demand more health-conscious features such as greater air filtration, operable windows, stairway access, etc.? We’re watching these decisions closely in order to identify risks and opportunities for our clients’ portfolios.

Generally, the lack of transaction volume in the real estate sector has led to price ambiguity, with wide bid-ask spreads. The result is that, despite operational distress beginning to emerge, private real estate pricing hasn’t yet reached the depths necessary for these property types to be attractive.