Dual Mandate: How Manulife’s Onay Payne Balances Smart Investing With ESG Concerns

Payne sat down with CO to talk about her ESG investment strategy, her move to Manulife, and ways the government can better partner with the private sector to bolster CRE development. 

This conversation has been edited for length and clarity.

Commercial Observer: Walk me through your earlier career. How did you get involved in CRE?

Onay Payne: Coming out of undergrad, I was at J.P. Morgan Chase, a very traditional banking background, and I was going into Harvard Business School. I was making $35,000 a year, which was big money for a starting investment bank salary, but I also got bonuses, and I was judicious about saving my bonuses, so I bought my first apartment at 24 years old, near Barclays stadium. After renovating it, I rented it out while in business school and I had passive income. As I became more exposed to additional career paths, I knew I wanted to pursue investment management, but I didn’t know real estate investment management existed as a career path. Fortunately, I got a Toigo Fellowship, and it was essential to exposing me to other career paths. Toigo is a fellowship focused on improving the face of finance and developing the next generation of diverse leaders, specifically underrepresented minorities. 

So it was through Toigo I got exposed to real estate investment management, and specifically, a connection with Clarion Partners, where I worked coming out of business school and where I was for 20 years of my career. It was really a beautiful and serendipitous mix of what had been personally interesting to me and, financially, one of the things that would put me on solid financial footing as an individual and what I could do as a professional pursuit, as well. 

You’ve been at Manulife for about a year. How’s it been, and what are you working on now?

It’s gone well. I think with any move, whether it’s career or a physical move, it takes some time to catch your stride, and that’s certainly been the case here, at a really big organization. But it’s been incredibly rewarding, in many respects. I came in as part of strategic repositioning as part of the real estate platform of Manulife, part of the Phase 2 to position us to become a leading global real estate investment management platform. We’ve invested in commercial real estate at Manulife for 100 years, principally through the balance sheet, but starting two and a half years ago we decided to position the platform for broader investment management infiltration. 

Our global head of RE came from DWS REIT, Marc Feliciano, he put Phase 1 into place, including outsourcing property management. And last year was the entry of the core part of the new leadership team — we brought in a new equity CIO, Maggie Coleman and a new head of capital markets, Jessica Harrison. And I came to lead the buildout of a new value-add strategy to complement the work we’ve already been doing within the core and core-plus arena. I came in specifically to focus on how institutional investors invest from a returns-driven perspective and how we think about integrating environmental and social considerations in a way that aligns with our stewardship. 

Tell us about the value-add strategy.

The core of what I’m working on is built off the existing infrastructure Manulife already has. Our existing strategies have been focused on core and core-plus. This new expansion of strategy is more on the value-add side of the equation, from both a risk and return profile, but also with respect to how we think about integrating environmental and social sustainability that recognizes the systemic risk that is evident and present today when we think about climate considerations and social consideration. 

2023 was the hottest year on record, our friends and families in Florida [faced] another huge hurricane, and so as investors we recognize that there are systemic risks we are forced to consider, with respect to the climate, and from a climate resilience perspective adapt to and mitigate. We also think about how we consider social themes within our investment strategy. For example, we know that affordability in the U.S. from both a home ownership perspective and from a rental perspective is at all-time lows. Over half of the U.S. rental population cannot afford to rent at affordable levels of average income. So that is one of several social themes we think about. 

As an investor, how do you identify risk and opportunities with respect to the environment and social impact?

There are a few ways we can do that effectively. Our investors are incredibly data driven, so as we think about and analyze the social and environmental issues, we have to do that from a business-driven way and think about fundamentals. First, real estate is location, as we think about how and where we invest, it’s not just top-down issues, but also bottom-up research. That informs where and how we invest. We believe in micro-market strategies. It’s where we can step into the mismatch between existing and emerging demand and supply. So first point, its data and fundamentals, “Real Estate 101.” 

Second, it’s how we think about executing in a way that the data yields alpha. Data can help with that alpha, but it’s really thinking about going where other groups have not chosen to go. So that can be looking at areas that have been historically undersupplied, but their proximity to nodes has fundamentals we want to see like job formation, density from a household formation, proximity to mass transit, but it’s thinking about identifying those nodes that have traditionally been underserved by institutional investors. And we do that certainly with the leadership team that’s here in place and the groups we partner with to understand those micro-markets, those local nodes. 

Can you give us some examples? 

It’s thinking about the tools that are available at the federal, state and local level that can support us in a way that yields attractive risk-adjusted returns.  For example, Live Local in Florida. The state and local municipalities understand there’s an affordability issue, and they’re giving tax incentives for maintaining specified levels of affordability within our products. So in that way we’re doing the right thing from a  moral perspective, but it’s also yielding a return premium, we believe, when we are effectively working with those municipalities. 

What are the headwinds and tailwinds to impact investing?

Tailwinds include — well, it’s really not a question of whether we are undersupplied. We’re structurally undersupplied. Since the Global Financial Crisis, we haven’t built enough homes. We don’t need to tell that story, irrespective of your political leanings, both Democrats and Republicans recognize that. Tailwind No. 2, in addition to the data, is it’s becoming clear that it’s an issue that won’t be addressed by the public sector alone — there’s opportunity for the private sector to step in. And other groups have recognized the opportunity to address some of these societal issues in a way that yields positive returns. 

And on the headwinds side?

There’s still a bit of a disconnect between policymakers who understand what will be required to incentivize more institutional investment. Everyone wants affordability, but implementing rent control has not proved to be a way to support greater levels of affordability — it disincentives adequate investment in the existing stock. So that’s one example of a bit of a disconnect between policymakers and investors. 

Another headwind that I could point to is a lack of communication, or insufficient communication, between community stakeholders and investors. As fiduciary, my primary responsibility is to my investors to achieve market-rate return, understanding the risks involved, and adequately addressing them. Government needs to come in to fill the gap between what our investors require of us, and what society requires to address societal issues. I think we need to bridge the gap between what’s required in terms of returns to investors, who have the opportunity to be part of the solution, and the needs of broader society, where the government has to be part of the solution, as well. 

The Vistria Group’s Margaret Anadu, previously who led the urban investment group at Goldman Sachs, created a $9 billion fund to bring private capital into forgotten places. What more needs to be done to bring more private capital into these forgotten corners of the U.S. to prepare them for climate change and to make them more affordable for residents without displacing them?

First of all, Margaret has done amazing work. We know each other and highly regard the work each of us is doing. In terms of what needs to be done, it’s education, both within the institutional investor community, as well as how we educate ourselves and our asset management teams, our acquisitions teams, in the ways where we can potentially support these dual outcomes and not compromise returns while still having positive impacts. 

We also need to evangelize more within the broader institutional investor community and demonstrate, articulate, and show how we can be part of the solution. On the environmental side of the equation, it’s a little bit simpler: We have return on investment, capital is required to achieve this, and [we can show] here is what we expect to be the decrease in operating costs you’d achieve over a specific amount of time. We wouldn’t necessarily know what that translates into from a rate perspective, but you can postulate on what that means to your return premiums over time. On the social side, we have to coalesce around standards and the key performance indicators [KPIs] we hold with respect to determining positive impact. We have to define it for ourselves, but as an industry, we have to think about how we aggregate and coalesce around the frameworks and the KPIs we use to measure positive impacts. 

And how do we ensure longtime residents will be served and not gentrified once capital flows into those regions?

I think about it in a couple of ways. Gentrification is absolutely something that institutional investors need to consider at the front side of the equation, as opposed at the back side. It’s being thoughtful and deliberate in terms of understanding your anti-displacement process. How do we think about incorporating a thoughtful procedure in dealing with anti displacement, anti-eviction? I point to the work we saw come out of New York City in terms of responsible property owners and managers, and thinking about it with a high level of intentionality. 

However, there are other ways we need to address the issue. The cost of building, pointing to the government. We have to think about how we, as institutional investors, can still achieve return on cost that is required for us to develop or redevelop. So some of it can be addressing the capital stack in a way that brings down our cost and makes it win-win, where the government gets what they need, and investors can get what they need. 

We also need to invest in communities that are historically underserved. We think about inclusionary zoning. In market-rate developments, there’s a 15 percent or 20 percent [building] requirement for low- and moderate-income renters. It’s a way we can increase higher levels of economic integration throughout the geographic area, it’s another tactic we can be more intentional about. Or it’s partnering with the government with housing choice vouchers that enable low- and moderate-income individuals to rent in high-quality, newer and/or market-rate units in a way that doesn’t displace them. 

In what ways can the government partner with the private sector to expand that philosophy? 

Housing choice vouchers, tax abatements that support specific levels of affordability within existing or new development, participation within the capital stack. Historically that’s been low-income housing tax credits or new market tax credits, but there are other strategies the government can continue to expand, like opportunity zone legislation that has brought more capital into underserved areas of the U.S. Lastly, I think overregulation isn’t a good thing, but with respect to transparency, requiring us to talk about how we are doing the work we do and endeavoring to have a social impact is also positive. 

What  do you like to do in your spare time? 

I’m a big workout person. I’m really focused on physical and mental health, and one way I’m able to address both is by working out daily, in the gym, whether it’s lifting, yoga or Pilates, that’s a big focus. I grew up dancing, so I get to workout a lot of stuff on the dance floor, whether it’s ballroom or straight jazz. Both things help mental health and my creative head space. 

Brian Pascus can be reached at bpascus@commercialobserver.com