The ULI Europe Trends Conference, held at the newly opened Park Plaza Westminster Bridge Hotel in London on June 28, gave the 263 people attending a forum at which to explore political and economic trends that will shape property markets this year and beyond.
Chaired by Greg Clark, senior fellow, ULI Europe, Middle East, and Africa (EMEA), the event also spotlighted topical issues such as redevelopment funding and energy efficiency. In keeping with the latter, ULI EMEA President Bill Kistler kicked off the proceedings by promoting the group’s LessEn initiative—an effort to reduce the energy consumption of existing commercial buildings—and urged those attending to share their knowledge and pledge their support.
In the opening keynote, “The Future of the Property Industry,” Glenn Rufrano, president and CEO of Cushman & Wakefield, shared what he called commonsense lessons. First, as the world gets riskier, investors should decrease the risk on their balance sheets. “Don’t bet the ranch, like Lehman Brothers did,” he warned. Second, private companies with higher leverage should keep their finger on the button and be prepared to trade. “If you can deploy the capital—and you’ve survived—there will be good opportunities to be had over the next 36 months,” he said. Investment hot spots include London, Washington, D.C., New York City, Paris, and Tokyo, said Rufrano. “When you’re in a storm, get into the biggest ship you can,” he reasoned.
In a session titled “A Tale of Two Cities: London versus Paris”—moderated by John Richards, former chief executive of Hammerson—Mike Hussey, managing director of Almacantar, pointed to London’s access to other markets, its qualified workforce, and its transport links as reasons to invest there. Typically, long leases and rising rents are also attractive for investors, while the city’s rich culture makes it a place where people want to live. David Rendall, chief executive of Cushman & Wakefield Investors, sang the praises of Paris, which is well connected as the center of Europe, he argued. France has also weathered the economic storm better than the U.K., he said. Ultimately, the panelists agreed that investors should have exposure to both markets because they are Europe’s top two investment locations.
Deliberating the politics of property and urban development after the U.K.’s general election this year were moderator Clark; Tony Travers, director of Greater London Group, London School of Economics; Nick Keable, adviser, land use politics/vice president of Saint Consulting Group; Andrew Gould, chief executive of English business for Jones Lang LaSalle (JLL); and Dame Judith Mayhew Jonas, chairman of the New West End Company. The arrival in power of a new government has triggered a desire to sort out public finances quickly, Travers said. With immediate steps being taken to trim the U.K. budget deficit by 2015, a sharp reduction in public sector spending is likely, which will impede infrastructure projects. “Urban regeneration will require an incremental approach,” noted Gould.
Keable depicted the unsettling impact the government’s considerable agenda for planning reform will have on the property industry. He also forecast difficult times ahead for residential property developers because the government has removed housing targets. Mayhew Jonas advocated use of tax increment financing as a means of delivering infrastructure improvements. “Adversity is a great parent of innovation, and we must embrace new ways to respond to the crisis,” she said.
In a concurrent session, Seth Lieberman, special adviser, real estate investments, for Advanced Capital, led a debate about redevelopment funding. Max Sinclair, cohead of Eurohypo’s U.K. division, commented on the regulatory implications of the Basel II accords, which make financing speculative developments exceedingly difficult. Fellow panelists Matthew Webster, managing director of global markets at HSBC Real Estate Finance, and Peter Denton, managing director at Westdeutsche ImmobilienBank, reiterated that banks are operating in a more conservative fashion.
Those attending were subsequently brought up to date on the London 2012 Olympic Games by a panel that included representatives from the Olympic Park Legacy Company, the Department for Communities and Local Government (DCLG), the Olympic Delivery Authority (ODA), and the London Development Agency (LDA). Ralph Luck, director of property at the ODA, identified the Olympic village, the velodrome, the broadcast center, the Olympic stadium, and the aquatics center as the “big five” Olympic icons. Joe Montgomery, director general, regions and communities, for the DCLG, emphasized the importance of dealing with the legacy of the Games today rather than in the wake of the event.
In the afternoon keynote, Daniel Thomas, property correspondent for the Financial Times, offered a bearish view of the property market going forward, particularly airing his concerns about the possibility of deflation. “The background for real estate investing could be better,” he said. “For a healthy market you need rental growth and availability of debt, and both are currently lacking.” The willingness of banks to make big loans has been overemphasized, he added, while listed real estate investment trust (REIT) vehicles face a tough time ahead.
Also at the conference, seasoned market participants discussed how fund managers and fund investors are restructuring and recapitalizing geared funds, in a session moderated by David Hodes, founder and managing partner of Hodes Weill & Associates.
Members of ULI’s Young Leaders—those 35 and under, who constitute 18 percent of ULI’s European membership—gathered to share their thoughts about challenges for the future of the real estate industry. Three Young Leaders—Mario Chisholm from Benson Elliot, Rebecca Graham from Investment Property Databank (IPD), and Marthjin Pool from Space & Matter—were preselected to present their “big ideas.” A sounding board—made up of Gould; Jonathan Short, executive chairman of Internos Real Investors; and Igor Sancisi, real estate developer at Grayfield Urban Development—then offered feedback and suggestions for taking the respective projects forward.
Chisholm proposed a fee structure that rewards only good performance. “A system that pays well for both good and bad performance needs to be a system of the past,” he said. “Currently, many fees are linked to the size of a transaction. In real estate, it is not possible to judge the quality of an investment immediately.” He suggested, for instance, that a portion of agents’ fees be paid from cash flow in deferred payments or that agents be allowed to take a stake in projects.
Graham advocated creation of a benchmarking service to measure the performance of developments. Such a tool could help manage lending risk, help developers understand the risk/reward tradeoff, and even help the government make decisions on public policy, she said.
Finally, Pool promoted the use of social media in raising awareness of development projects and matching developers with potential end users. This would reduce financing pressure as well as sales and marketing costs, he said, though he admitted it could be a time-consuming exercise.
Sancisi wrapped up the session by urging audience members to support the Young Leaders network by becoming virtual “followers” of the three Young Leaders via the ULI website.
Those attending left the conference with a realistic view of the European property landscape, set against a challenging political and economic background. The key take-away for investors was to tread carefully, return to basics, and target safe, long-term environments.