Investors with asset management capabilities see a wealth of opportunities in offbeat places and sectors in 2012, revealed the Urban Land Institute’s and PricewaterhouseCoopers’ Emerging Trends in Real Estate Europe 2012 survey of more than 600 European property professionals. Core investment plays are seen as overpriced; therefore, investors are moving back up the risk curve, as evidenced by feedback from respondents that 47 percent of allocations in 2012 would be in core or core-plus investments and 53 percent would be in riskier value-added, opportunistic, debt acquisition, or development investments.
Recommendations for short-term, noncore investment strategies include hunting for buildings in need of refurbishment that offer the chance to bring assets up to scratch in locations on the edge of prime districts in major cities. Buying secondary office space and converting it into mainstream budget hotels also represents an opportunity, particularly in London’s Waterloo, Paddington, King’s Cross, and Bishopsgate neighborhoods. “Make sure to team up with a partner with skin in the game,” however, advises the report’s author, John Forbes, who is a real estate partner at PricewaterhouseCoopers and a ULI member.
Another strategy is providing mezzanine financing up to 70 percent loan to value (LTV) for residential developers in cases where senior-debt providers are prepared to lend only up to 50 percent LTV for the right asset.
Further prospects come from investing in London residential property that could be resold to wealthy individuals from Greece and Italy seeking to own a home in a country that, while enduring a downturn, remains more economically stable than their domestic markets. “Starved of development finance and a tangible imbalance between supply and demand, these properties are seen as safe because if you cannot sell them, you can lease them. But beware of bubble territories such as Elephant and Castle; stick to the deepest, most liquid markets and top locations such as Chelsea, because interviewees anticipate the market becoming overheated,” Forbes notes.
Numerous longer-term noncore investment strategies are also emerging, including gas storage facilities—of which there is an acute shortage in the U.K. Despite difficulties in securing planning consent for them, solar energy parks and wind farms were identified as a “growth business” given less fossil fuel and more energy use globally equal increasing dependence on renewable power.
Emerging asset classes such as health care, hospitals, and data centers also are considered interesting to the capital markets and to institutions targeting long-term, stable income streams.
Furthermore, if an investor can take a ten-year view, the Turkish retail sector looks promising. A consumer-driven economic expansion is underway with gross domestic product (GDP) soaring 8.8 percent during 2011, yet a widening current account deficit and fears of inflation mean it is not a sure bet.
“In a market where there isn’t yield compression and there isn’t rental growth, people are scrambling around trying to find investments that are not ‘run of the mill’ through which they can generate additional returns. In a flat market, you have to find angles where deep asset management skills, for example, allow you to make a difference,” Forbes says.
“Property, going forward, is going to be a very granular business. Rather than focusing on asset types, it’s going to be about finding individual opportunities.”
