CONTRIBUTORS
Raymond Jacobs
Managing Director,
New York
Franklin Real Asset Advisors
Gaston Brandes
Head Institutional Portfolio Manager, EMEA, Franklin Real Asset Advisors
John G. Levy, CFA, CAIA
Director of Impact,
Franklin Real Asset Advisors
COVID-19 revealed a lot about the world. It drew the curtain back on our ability to deal with a significant global crisis, laying bare systemic weaknesses and exposing structural failures. One such failure pertains to social infrastructure. The pandemic highlighted that many communities around the world lack the necessary facilities—things like accessible health care facilities and affordable housing—to combat threats like COVID-19 effectively. These shortcomings likely contributed to the tragically high levels of sickness and death. While the lack of necessary real estate infrastructure certainly existed prior to COVID-19, the pandemic emphasized the need for increased investment. Looking ahead, we need to address this critical deficit head on. Inevitably, another global crisis will strike, whether it be another pandemic or a climate change emergency, or perhaps some other unforeseen circumstance. Whatever the challenge, we need better social infrastructure systems in place to defend against these events.
Key Takeaways:
- Good news/bad news: the global COVID-19 pandemic highlights the lack of adequate social infrastructure in place in much of the world, particularly in terms of health care facilities.
- Government funding shortfalls, notably with the austerity measures associated with public spending following the global financial crisis (GFC), have contributed to the lack of investment in good and accessible social infrastructure.
- Given the dearth of public spending in the space, coupled with the magnified need post-COVID-19, the opportunity for private capital flows into social infrastructure is substantial. While governments have implemented a range of fiscal and quantitative measures to cope with many aspects of the pandemic, social infrastructure funding has not been a priority.
- The need for social infrastructure investments may be accelerating shifts in real estate allocations away from traditional retail and commercial properties and toward more impact-related allocations.
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WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. The risks associated with a real estate strategy include, but are not limited to various risks inherent in the ownership of real estate property, such as fluctuations in lease occupancy rates and operating expenses, variations in rental schedules, which in turn may be adversely affected by general and local economic conditions, the supply and demand for real estate properties, zoning laws, rent control laws, real property taxes, the availability and costs of financing, environmental laws, and uninsured losses (generally from catastrophic events such as earthquakes, floods and wars). Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments; investments in emerging markets involve heightened risks related to the same factors. To the extent a strategy focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a strategy that invests in a wider variety of countries, regions, industries, sectors or investments.