An interview with members of AIMCo’s Infrastructure and Real Estate teams about adapting to the coronavirus crisis and what the future may hold
When COVID-19 caused global disruption in 2020, investors’ illiquid assets experienced an immediate impact. On the infrastructure side, airports and other transportation-related assets saw passenger numbers plummet. From a real estate perspective, shopping malls shuttered and office towers emptied.
Two of AIMCo’s team members shared their thoughts on how the coronavirus has impacted their work and what they’re preparing for in the months and years to come.
Tony Vadacchino is a Director in Real Estate based in Toronto. He leads a team that oversees residential, office, industrial properties within the Canadian portfolio.
Adam Harbora is a Portfolio Manager in Infrastructure & Renewable Resources. Based in Edmonton, his responsibilities at AIMCo centre around European investments.
What do your days look like now and how does that contrast with how you normally work?
Tony: I think for all of us, there was a quick adaptation to working from home. A lot of our day-to-day is interacting with various advisors and partners is done through phone or email so that component hasn’t really changed.
When we look at a new investment though, a lot of times we would get on planes or travel to tour an asset. That really stopped and is only now picking up.
Our teams are not only investors, we are heavily involved in asset management. We have been working with our partners ensuring that all the proper protocols are in place to ensure that staff and tenants at all the individual properties are safe. We had to understand the implications with respect to rent collections, cap-ex programs and what could be done at the buildings to manage cash flow. The first few weeks were spent digesting the changes mandated by various levels of government and on day-to-day asset management. Video calls and online meetings were ideal for that type of work. For the most part, it’s been more efficient than a lot of people would have expected.
We are very fortunate to have great asset managers and operating partners across the country who are looking after our assets. We can rely on them to go and check things out in-person when required.
As we enter the next phases, we’re thinking creatively about how we could perform visual inspections and assess new opportunities by utilizing technology. I have seen different advisory firms do their own virtual tours of a building and post those online for prospective buyers. People are trying to use technology to their advantage to enable them to complete those types of diligence activities that would normally be done in person.
Adam: It’s quite similar for us. Typically, our days are broken up into two prongs — the pursuit of new investments around the globe and managing the existing portfolio. This crisis initially put a pause on new investment opportunities.
We’ve been focused a lot more on managing existing assets. Since I mostly manage our European portfolio, being based here in Edmonton means I’m on the phone and video conferences quite regularly, at early hours of the day. That dynamic has not changed much for me.
What has changed is that we aren’t able to visit our portfolio companies in person which has some real benefits. It is always nice to get in a room together and discuss the business and strategies. But overall, it’s working reasonably well, and since I’m used to working off a laptop, out of hotels or on planes, it isn’t too much of a challenge.
What kinds of investment opportunities do you think will emerge in the coming months?
Adam: It’s a good question and it’s sort of a difficult one to answer, but I think the reality is we’ll probably see an increased level of deal activity across the spectrum in infrastructure. I think we’ll see a number of different parties who are looking to optimize or re-formulate their portfolios — who are looking to perhaps shore up liquidity in certain elements or their portfolio, which perhaps forces them to sell non-core businesses or non-core parts of their portfolio or asset base.
Overall, I would say regulated businesses have performed reasonably well through this period, so I expect that you may see even a little bit of an uptick in demand for those sorts of assets. And of course, the counterbalance to that is the reduced level of returns that you might see on those businesses.
On the other hand, some parts of the infrastructure spectrum — transportation probably being the biggest impacted — may see a lot of deal activity. There are transport assets all around the world that are struggling. They’re either closed or not operating near normal levels given all the social distancing and self quarantining and restrictions around travel. Perhaps we’ll see some opportunities where investors who maybe aren’t in love with that space after COVID are looking to recycle some of those assets.
I would say there’s a whole spectrum of assets in between that carry different risk profiles and will certainly have managed through COVID in different ways. The real benefit for us at AIMCo is that we’re a long-term investor. We’ve got a real strategic advantage in that we can take a long-term, patient capital view on some of these opportunities and look a little bit past the short-term volatility that’s presented itself during the pandemic. Whereas other investors, in some cases, have restrictions around what sorts of assets they can invest in, their investment horizons and when they need to exit businesses. I think this is a real opportunity for us to pick up some interesting investments at elevated return levels. In the long run and even in the medium term, I would say, that would be a good outcome for our clients.
Tony: With respect to opportunities we see emerging in real estate, right now we are speaking to our partners and advisors across various geographies. If we think back to when there have been times of shock, typically after those shocks have passed, we’ve seen some great opportunities arise. We are hopeful that those opportunities will present themselves.
We’re looking in different geographies and climates where the availability of financing may be harder to come by. As a result, if you get an owner of a property who is in some form of re-financing situation, that may present an opportunity to acquire an attractive property at great value.
There are certain sectors we’re seeing perform relatively well. Think about all the things we are ordering into our homes and consider what that might mean to the logistics sector. That’s an area we’ve previously focused on and should opportunities arise, we’ll be keeping our eyes and ears open.
In terms of offices, there’s been a lot of talk about the number of organizations working from home. I know the crisis has caused us to question what the future of work might look like. If there wasn’t a pandemic, I think people would prefer to be doing business face to face and I believe we will go back to offices. There was a thesis in offices regarding density — that you should put as many people into a space as possible — maybe that wasn’t the answer. We might see fewer people on a floor, but because they need to be spaced out, a business still might need the same amount of office space.
We’re thinking through all of this as we look at office demand. But talking to some of our large users, whether it be banks, law firms — everyone I talk to — while they may be happy to work from home for a time, they’re all looking forward to the day where they can safely go back to their offices.
What are some innovative changes you’re hearing about when it comes to asset management?
Tony: A lot of thought has gone into planning re-entry for office tenancies and even larger gathering places like malls. We’ve had to think through how traffic comes in and out, how to space people, how to create aisles. People were used to walking around malls in a free-flow fashion and now we are seeing structures that create laneways going east/west or north/south.
In offices, a lot of work has gone into figuring out what works. We’ve looked to our partners in different geographies who have already opened and may be ahead of the curve on everything from signage on floors to relieving pinch-points at locations like elevators. There are quadrants marked on the floors of elevators with an x to mark the spot where you should stand. One of our partners is using AI to monitor patterns and flow in a building and using an app for people to log in and see when to arrive so there aren’t 100 people showing up at the elevator bank at the same time.
Adam: I see many of those same themes emerging in infrastructure. In the transportation sector, we’re using technology as much as possible and enhanced processes all with a goal of increasing consumer confidence. At airports, for example, we see things like heat mapping to quickly take the temperatures of all the passengers entering the terminal. We have other technologies that monitor the amount of people congregating in certain areas and potentially creating unsafe crowds. They can be asked to spread out and keep within safe distances.
Signage is a big one — not only on walls and hanging from ceilings but on the floors to help remind people where they should be standing and queuing up. Plexiglass separators have been set up in many areas. And of course, the basics like hand sanitizer and masks that will be available all over airports. The goal is to let people know its safe to travel again and to return to their normal habits when it comes to business and leisure travel.
One other interesting development has been the efforts to help in the COVID-19 response. At London City Airport, for example, we opened the runway for military and medical supply access. There was a big event centre across the dock that was being repurposed for a testing and hospital facility, which obviously needed supplies and a number of different things, so opening the airport up for that was one way that we could help. At Porterbrook, we were prepared to repurpose some of our train vehicles to be mobile testing facilities.
How does the due diligence for any upcoming opportunities change in light of COVID-19?
Adam: I think the due diligence process will be similar, but the reality is we’ll have another scenario to run through our analysis. History has provided us with various scenarios to stress test downside cases — the Global Financial Crisis, 9-11, other viruses like SARS. This will provide us with another model that we can use to test the resilience and robustness of our business cases.