Workforce Housing as a Defensive Play

Scott Cote

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DENVER—Like many in the commercial real estate industry, Scott Cote, executive vice president and co-head of Real Assets at Aegon Real Assets US is fairly confident that a recession, or at least a downturn, is coming—the only question is when. It could be anywhere in the next 19 to 24 months, or perhaps sooner as geopolitical risk creates more downside.

In response, the company evaluated its private strategies and landed on multifamily—workforce housing in particular—as resilient to a downside scenario in the economy, Cote told the audience at the recent 23rd Annual Transwestern Real Estate Forum Institutional Insurance Investors Symposium.

Workforce housing, of course, has been attracting its fair share of investment in recent years for various reasons: demand for the product type is strong as the affordable housing crisis worsens, buying opportunities are greater and strong financial support can be had from the GSEs. Perhaps the most significant reason is that workforce housing assets, especially those in secondary markets, are outperforming more traditional multifamily product. By contrast, liquidity for institutional-quality assets in urban markets is lower, JLL noted in a recent report. And indeed, Aegon’s Cote noted that the company is staying away from new construction luxury because that property market is weaker right now and doesn’t have the demand drivers seen in the middle market.

How Aegon is Approaching the Market

Instead, the company is partnering with local developers, usually though a JV equity structure, Cote said at the event.