Dan Bradley

Industrial and apartments look like the darling markets of the future to Dan Bradley, director at AEW and senior portfolio manager for AEW Core Property Trust, an open-end core real estate fund. But even before COVID-19, he started dialing back on the retail sector and office investments, and preferred neighborhood shopping centers to malls. He works hand-in-hand with AEW’s research department, with a goal to match the risk taking to a client’s mandate, seeking to protect portfolios by diversifying through product, region, as well as the industries of the respective markets.

Named by one of our top chief investment officers as an all-star, Bradley advises that “it’s OK to be boring with just good, steady, well-leased assets that generate good cash flow. “Long-term, that’s great,” he said, adding that he looks for real estate investments that are the most liquid (mainly commercial) and seeks a strong lease duration, credit, and cash flow. He’s eying cold storage opportunities, and although the firm is invested in data centers, he believes their yields are currently low. It has served him well over the course of his career to focus on steady clients with good balance sheets rather than those who might be able to pay higher rents in the short term. “The long growth market can hide a lot of mistakes,” he said, and it’s also good business to always have an exit strategy in place.

Bradley began his early career with an MBA from Northeastern, and was advised early on to choose where he wanted to live and build a career around it. He enjoyed how real estate touched on all aspects of society and began working in real estate in 1983 at The Boston Company Real Estate Council, later named GE Capital Investment Advisors, where he rose to become managing director of portfolio management, and was responsible for developing and directing the execution of clients’ investment strategies. He joined AEW in 1999 and prior to his present role, was responsible for separate account portfolios totaling approximately $5.5 billion of gross client assets at AEW, which has $78 billion in AUM.

CIO: What (actionable thing) have you learned over the course of your career that has proven itself this year.

Bradley: The key lessons learned over my career that have helped this past year are:

With respect to real estate, individual asset-level exit is easy to lose sight of in portfolio management. It’s important to regularly review the underwriting with our Risk Management Committee and know when an asset no longer makes sense for the portfolio on a go-forward basis, even if it is currently performing well.

Portfolio diversification is important not only as it relates to product type and region, but also as it relates to the industry drivers within the respective markets. The AEW Research team is constantly reminding us that real estate is simply a factor of production, similar to capital and labor. As such, you must pay close attention to the local industry drivers in any given property market to understand your potential for economic growth and, consequently, rental income growth. Generally, a portfolio diversified with good product type, geography, and industry exposure will be a strong performer.

A final actionable item is balancing the trade-off between maintaining the rental rate with good lease duration and maintaining a strong credit profile within a diversified real estate portfolio.

I have been fortunate to be a part of a firm like AEW that has a strong platform to leverage for portfolio management, including an incredible in-house research team as well as best-in-class acquisitions and asset management teams. Through our separate account funds, and overall assets under management, we have a unique window into a most transactions occurring throughout the country, adding to the clarity and conviction that we have about our outlook for our investments.

Finally, the people and team culture are incredible at AEW. Everyone is willing to roll up their sleeves, particularly during challenging market cycles—and I’ve been through a few in my career. The most creative solutions have come about during times like these, and we have always been able to accomplish our goals. All this just makes my job easier, and I am very grateful for that.

CIO: What investments (specific securities or sectors) look good to you now? And why?

Bradley: Steady and boring is OK in real estate. I generally like assets that are well-leased, have strong cash flows with strong credit profiles, and good lease durations with a path to future durable income that can grow.

Maintaining cash flow is the key focus even if the valuation has been impaired through capital market activity. While we cannot determine how the capital markets price cashflows in any asset class, real estate included, we can manage the durability of that cash flow and we believe that the market rewards stable income over cycles. Obviously, industrial and multifamily is favored in today’s environment, and for powerful demographic and secular reasons, while the office and retail sectors are currently challenging. With a strong research approach to portfolio management, underweighting or only selectively targeting one or both of those sectors is holding up well as an investment strategy.

CIO: What ones don’t? And why?

Bradley: Retail, and particularly malls and lifestyle centers, as opposed to grocery-anchored centers and appropriately tenanted open-air centers, are currently out of favor. The mall and lifestyle sectors had plenty of warning signs pre-COVID-19, and the last six months really accelerated those warning signs.

Bottom-up, asset level selection within retail is more important than ever. The stronger centers have the potential to grow stronger, and a significant portion of the underperforming retail will likely get rationalized and repurposed.

In the current environment, there is a relative degree of uncertainty in the office sector, particularly as it relates to current vacancy. There had been a trend towards increasing densification and reducing space requirements by tenants for some time, so the demand shock only exacerbated that uncertainty; however, the anticipated growth in office sector employment, as well as social distancing requirements and safety of employees, could offset any negative, long-term impact.

Given how volatile and dynamic the capital markets are today, we will continue to monitor all sectors and demand drivers as we assess our investment goals going forward.