PERE’s live followers congregated for the first time since the advent of the global coronavirus at PERE Europe in London this week. “I’m networking physically for the first time in 18 months. It’s actually quite exciting,” said Tony Brown, global head of RE at M&G, onstage during his panel on day one.
Beyond the thrill of in-person exchanging of perspectives, Brown was among an array of panelists pointing out how much change the sector must undergo to thrive in a post-pandemic environment. Repositioning assets to hit the high marks demanded by occupiers and accreditors alike is the order of the day. But that is easier said than done, panelists agreed, given how certain asset types continue to face uncertain occupational futures.
Here are five takeaways from the two-day return to PERE’s in-person live editorial:
- “You have lots of assets that were built five years ago that are already obsolete,” Karim Habra, head of Europe and Asia-Pacific at Ivanhoé Cambridge, said during the opening panel. For Habra, the acceleration of trends during the pandemic have included “the acceleration of obsolescence.” Speaking with PERE over coffee later, he explained that obsolescence has accelerated not just because of more stringent requirements for ESG – which he called “the key to liquidity” – but also increased tenant demands for digitalization and flexibility. Also thinking about asset obsolescence was Daniel McHugh, chief investment officer of real assets at Aviva Investors, who offered this nugget: “Estimate how much you think will become obsolete and then double it.”
- But “we’re not going to die by 1,000 cuts,” said Paul Tebbit, managing director and fund manager of BlackRock’s £3.5 billion ($4.8 billion; €4.1 billion) BlackRock UK Property Fund of the wobbling office property sector. However, he warned that lessons must be learned by the industry from the travails faced by the retail property sector, which he said took a decade to be fully felt. He warned not to last it out and wait for valuations to wind down. “We need to learn: grasp the mettle, get on with reallocation, sell assets you need to sell. It’s painful and there are transactional costs to doing so. But you have to get your portfolio repositioned.”
- “Add value that is independent of the cycle,” said Bill Schwab, founder of LCI Real Estate Investments. The former Abu Dhabi Investment Authority head of real estate, who chaired PERE Europe, promoted value-adding strategies as being of most relevance in a post-covid private real estate market where there is little beta-level value to obtain. He pointed toward opportunities to upgrade assets in a world where fiscal stimulus was gone. Notably, he predicted the advent of structured products, the likes of which are seen in real estate credit markets, availing themselves in the equity part of the capital stacks too. “Real estate is structurally flexible,” he reminded delegates.
- “A target is not a plan,” said Aviva’s McHugh on a panel looking at how to get ahead in the race to achieving a net-zero real estate portfolio. He discussed the importance of integrating ESG into business practices as the industry continues to account for a significant proportion of carbon emissions. During the discussion, McHugh highlighted how often a target is mistaken for a plan, and that there is a long way to go in achieving the targets set out across the industry. But now, he said, is “gamechanger time,” and he warned those waiting for regulation to make plans will be too late.
- “You have to believe the Chinese government will step in and do something about it,” said Andrea Orlandi, managing director and head of real estate investments, Europe of fellow Canadian investor, CPP Investments. Investors onstage on day one fielded a question on systemic risks associated with the potential collapse of debt-stricken Chinese developer China Evergrande. Orlandi and fellow panelist Habra both held calls with Asia-based colleagues before the event to ascertain threats to their activities. Beyond a weakened RMB and challenges for organizations working with state-owned companies, both expected issues associated with China Evergrande’s $300 billion debt pile to be contained by Beijing.