Slate Targeting Undervalued Assets after SCREO II Capital Raise
Slate Asset Management is an alternative investment company that concentrates on real estate and real assets in the United States, Canada, and Europe. It practices fundamental value investing, meaning that it orients capital toward undervalued assets to create long-term value for its investors. In April 2022, Slate announced the close of its Slate Canadian Real Estate Opportunity Fund II (SCREO II) after a final capital raising round that accumulated about $572 million.
The venture was a resounding success, with investors surpassing the initial $450-million target and committing almost two times more funds than the earlier Slate Canadian Real Estate Opportunity Fund I (SCREO I). SCREO II received a diversified mix of investors, including family offices, endowments, North American pension funds, a large German pension fund, and some SCREO I investors.
The prosperous capital raise denoted investors’ confidence in Slate’s investment approach, even amid pandemic-related market uncertainties and disruptions. According to Slate founder Blair Welch, North America’s commercial real estate market is experiencing an influx of value investing opportunities due to the global responses to and repercussions of COVID-19. After the virus broke out, governments worldwide initiated lockdowns and capacity limits in commercial spaces such as retail stores, gyms, and restaurants. These measures combined with other factors impacted business revenues and drove down commercial property values.
This subsequently compelled landlords to pivot to long-term repositioning strategies and disposition timelines. Traditionally, many commercial property investors plan for a three- to five-year investment horizon. For example, investors who acquired properties toward the end of 2019 estimated that they would hold and add value to the assets for three to five years and then sell them at a profit. However, the pandemic forced them to rethink their investment timelines, as well as created a need for additional capital to continue operations.
The governments of the United States and Canada hence implemented polices to support the commercial real estate market. However, many investors directed their funds to asset classes perceived as less volatile in the pandemic environment, such as logistics and industrials. Real estate like retailers, offices, senior housing, and hotels were largely neglected amid concerns of weaker performance. The aversion to these sectors widened disparities between their underlying values and market prices on a cost-per-square-foot basis.
Slate is built to capitalize on such disparities. Looking beyond short-term market headwinds, Slate emphasizes future-oriented strategies that facilitate the flexibility necessary to anticipate the long-term and navigate the pandemic’s challenging operating environment. To this end, the company leverages a focus on fundamental value and a defensive basis to acquire high-quality assets at an attractive cost basis. Historically, this has enabled it to provide its investors with returns that outperformed benchmarks.
With the capital from SCREO II, Slate is targeting opportunistic real estate investments in North America with a focus on portfolio acquisitions, cyclical investments, and asset repositioning and redevelopments. It has already completed several investments. In 2021, the company deployed some of the funds towards the acquisition of a portfolio from Annaly Capital Management for $2.33 billion. The contents comprised performing real estate loans, real estate equity, and debt securities. As of April 26, 2022, SCREO II was 37 percent invested.