During a time of market dislocation, some shake-up in the ways people do business is to be expected. At the 16th annual 2023 PERE Asia Summit this week, approximately 600 delegates gathered at the Fairmont Singapore hotel to hear the perspectives of the region’s top private real estate managers and investors. One recurring theme was how various aspects of investing have changed over the past year. Here are four notable examples:
Some investors have changed their views on China
Managers and investors tend to fall into two camps when it comes to investing in China: those that consider the world’s second-largest economy to be an essential part of an Asia-Pacific real estate portfolio, and those that have pulled back from the country. In the former group is Catherine Hong, managing director for the portfolio solutions group at Morgan Stanley Investment Management, which has been actively adding to its logistics portfolio in China in the past 18 months. Speaking on day two of the three-day conference, Hong insisted: “You cannot ignore China.”
On the other hand, Stephen Tross, chief investment officer of international investments at Bouwinvest Real Estate Investors, said his organization has changed its views on China and, to a lesser extent, Hong Kong. The investor, consequently, sold its listed China exposure and stopped making new unlisted investments in the country because of the uncertainty arising from the Russia-Ukraine war and China’s stance on Taiwan. “Those are risks you won’t get compensated for,” he said.
Others have pivoted to short-term opportunities
Jiroo Eoh, head of the alternative investment department at South Korea-based ABL Life Insurance, said the insurer has shifted to pursue short-term opportunities in real estate. He also believed real estate debt was the most appropriate strategy for a short-term timeframe. “Due to the credit crunch, real estate debt is good for liquidity, good for short-term investments and also good for our predictions for the next 24 to 36 months,” he said. In particular, the insurer favors construction loans and refinancings for logistics and residential projects.
Eoh also emphasized the importance of being “prompt and quick” in making investment decisions when ABL finds a good asset. “We want to be flexible with those sectors if the return is right,” he added.
The best-known sources of liquidity are no longer so liquid
Listed securities and funds in NCREIF’s Open-End Diversified Core Equity index are commonly thought of as being the most liquid of real estate investments. Not so, said Bouwinvest’s Tross. He noted that the Dutch pension fund manager did not want to sell any of its public real estate holdings after its listed portfolio was valued down by roughly 30 percent following a rapid correction in the listed market early last year.
Similarly, the ODCE funds were only able to sell their residential and logistics investments and did not want to do so because such sales would result in a greater weighting to less-favored sectors. Where Bouwinvest did find liquidity was in sector-specific, open-end funds in logistics and residential. Those vehicles were able to put assets on the market because they did not have to worry about sector allocations, he said.
ESG has become less of a priority
John Pattar, head of real estate Asia at KKR, acknowledged that with the disruption from geopolitical events such as the Russia-Ukraine war – which he called “the first geopolitical tension that’s affected everybody” – other issues have taken precedence over ESG considerations. “You can’t tell certain parts of Europe that they’ve got to focus on ESG when they’re just worried about living,” he said, speaking during the opening keynote panel on day one.
However, he stressed ESG should remain a long-term business objective for every organization, regardless of what is happening in the world: “Short term, it might drop down the list of importance, because you’re dealing with day-to-day, quarterly problems, but it shouldn’t change the company’s philosophy, the idea that it’s very, very relevant.”