Two Sigma Takes Quant Expertise Into Real Estate Investing

Two Sigma is starting a group to invest in private real estate assets as the $58 billion quant firm seeks to expand its data-science expertise into non-public markets.

Rich Gomel, most recently managing partner of WeWork’s real estate investment platform, has joined as chief investment officer of Two Sigma Real Estate, the company said. Tom Hill will be chief executive officer. It will be part of the firm’s $3 billion private investment business, which Hill also leads.

Investors including buyout shops are eyeing the property markets for opportunities after the Covid-19 pandemic’s economic impact left certain sectors, such as commercial real estate, struggling. Two Sigma will initially invest its own capital and will eventually open the real estate unit to outside money.

“Real estate is rich in data, but nobody uses it to figure out what to buy or where to buy it,” Hill said Tuesday in an interview. “If you actually have predictive tools where you can forecast demand and supply, it’s really powerful.”

It can also help avoid having “your talented investment professionals bark up the wrong tree, go down dead-end alleys and waste their time on non-deals,” said Hill, who built Blackstone Group Inc.’s alternative-asset management unit into one of the world’s largest hedge fund investors.

Gomel brings more than 20 years of property experience having worked at JPMorgan Chase & Co.’s Junius Real Estate Partners and Starwood Capital Group. Drew Conway, who joined Two Sigma in 2019 and began building out the firm’s real estate data platform, rounds out the leadership team as the group’s head of data science.

The business will initially focus on real estate assets in North America across sectors -- including multi-family, retail, hospitality and industrial -- and use computer-driven research and technology to spot opportunities.

The data will help the firm’s investment team “inform their decision-making process and their relationship with counterparts,” said Conway.

In one example of how Two Sigma plans to marry computer science with real estate investing, one of its Ph.Ds spent three months devising a method to predict which markets are most likely to adopt rent controls in the future. Such data may help the firm avoid being blindsided when an apartment building it has purchased suffers a sharp decline in value because it has lost its flexibility to raise rents, according to Hill.

The firm is also using alternative data sets to understand consumer behavior, sifting through credit card and debt information to gauge areas of distress as well as examining data on mobility information and on the spread of Covid-19.

That information is already helping the firm as Two Sigma is seeing an increase in economic activity in cities as workers return and spend money once again, Conway said.

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