The resiliency of Hazelview Investments’ Four Quadrants strategy

This article was produced in partnership with Hazelview Investments.

Hazelview investments takes pride in its inclination to zag when the rest of the investment sector zigs. Nothing could illustrate this better than the firm’s upbeat outlook on the current opportunities in the real estate sector despite a series of body blows, including a global pandemic that gutted downtown office leasing and the more recent interest-rate hikes.

While many investors are turning away from real estate due to the perception of how higher borrowing costs will affect returns, Hazelview sees it differently: “Rate hikes are typically coupled with strong economic activity, and real estate, with its ability to adjust rents in pace with this growth, provides for a great hedge against inflation.”

But what happens when rate hikes finally do their job to stymie economic growth? According to Hazelview, that’s when the truly active investors shine.

“Our strategy is not reliant solely on market growth – most of the value we create comes from finding assets in good locations but that are not achieving their full potential. We then roll up our sleeves to bring that asset in line with the market.”

And, while many investment funds are concentrated in a specific property type or geography, Hazelview preaches the import-ance of being nimble. “Having the ability to dig for value in every corner rather than being boxed into a specific geography or sector even when the original strategy no longer makes sense is important and provides resiliency through different market conditions,” says CEO Ugo Bizzarri.

This was ultimately the thesis behind Hazelview’s Four Quadrant Global Real Estate Partners, a fund that invests in real estate in whatever way they feel allows them to generate the best value.

This includes investing both privately or through public markets and through equity or debt investments.

Enhanced liquidity

The fund, which celebrated its 10th anniversary in 2021, has been delivering an average annualized net return of 8.6 percent since inception.

Through the Four Quadrant Fund, Hazelview has developed a vehicle that offers access to the inflation-hedge bene-fits of real estate equity with the stable and consistent yield of real estate debt while also achieving enhanced liquidity through the public investments.

“It can be challenging to offer private investment strategies with a robust redemption feature for investors. To do this, it is incredibly important to match the liquidity you are providing investors with the liquidity of the underlying investments. Our allocation to public investments is specifically designed to ensure we maintain that balance and has allowed us to fulfill all redemption requests since inception.”

From Hazelview’s perspective, having the right kind of diversified portfolio of real estate products in times like these can present meaningful opportunities to savvy investors.

“When we launched the Fund, no one had a product like this, with investments across all different facets of real estate – those being public, private debt, and equity,” says Corrado Russo, Hazelview’s managing partner and head of global securities.

Institutional approach

While Hazelview may have been the first to introduce this strategy in a fund concept, they admit this is not a new strategy. Larger institutional investors have been building portfolios in this way for many years.

“We built the Four Quadrant Fund to bring an institutional approach to real estate investing to an audience that may not have the means to achieve the diversification independently,” says Russo, who, along with CEO Ugo Bizzarri, cut his teeth running real estate investments for one of the biggest institutional investors in Canada, the Ontario Teacher’s Pension Plan Board.

This strategy of investing both publicly and privately in real estate debt and equity allows the investment firm to maximize the total return for investors while minimizing volatility. The Fund also invests globally; it can capitalize on pricing inefficiencies in different markets around the world to provide better diversification, Russo says.

In today’s market, Hazelview is particularly interested in three main property types, says Hazelview CEO Ugo Bizzarri.

The first two are multifamily and industrial sectors. Both allow Hazelview to exercise a value-add philosophy that is critical to its success. Industrial has become intriguing in recent years with the surge in online retail. The company is particularly bullish on warehousing, Bizzarri says, because trendlines in online shopping indicate that retail will move further into warehousing.

“Industrial has the same type of long-term investment real estate fundamentals that we like, where there’s a gap between how much warehousing space we need and how much supply there is,” he says.

A surprising third area Hazelview is targeting these days is farmland, a specialty sector that many other investment firms ignore. The impacts of climate change coupled with population growth make this sector particularly interesting.

Bizzarri says farmland represents an important investment opportunity. “As population in Canada grows, agricultural land becomes increasingly more valuable. And to be clear, we’re not buying farmland to develop. We’re buying farmland to farm – preserving its agricultural use over the long-term.”

While the broad diversification of the strategy is important to the Four Quadrant Fund’s success, both Russo and Bizzarri stress that it’s this value-add philosophy that truly sets the Four Quadrant Fund apart from the pack.

“We’re not just going out there and buying assets,” says Russo. “We’re going into every investment thinking, how can we create value? At the end of the day, investing in real estate is about accessing the underlying stable cash-flow stream, the contractual rent obligations that tenants pay you, and the ability to add value to that real estate.”