This week, approximately 60 real estate professionals met in an unusual place to discuss unusual property investments – a sign of the times, perhaps.
The conference in question was in London – nothing unusual in that, of course. Real estate conferences are happening all of the time in the capital.
The difference with this one, though, was that it was held aboard a decommissioned battleship – one held in high esteem by the British establishment.
In its heyday, HMS Belfast served her nation by supporting advancing allied troops during the D-Day landings. But nowadays she serves in a gentler capacity as a floating naval museum.
Moored on the River Thames against a backdrop of gleaming office towers, including the Mayor of London's, the ship seems an outlandish relic of a time gone by: perhaps something you might expect today on the shores of a military state ready to quell a revolution rather than in the middle of Europe's pre-eminent financial center.
Nevertheless, it is easy to understand why the conference organizers, Investment Property Databank (IPD), chose the ship as a venue. The theme was “Alternative Today, Mainstream Tomorrow”, and HMS Belfast is one of the more “alternative” locations in London for a real estate gathering. Once delegates had put various set-backs behind them (such as mistaking an exhibited dummy naval officer for the cloakroom attendant and getting lost along the winding passages) the question that needed to be addressed became quickly apparent: Is investing in marinas, forests, farms, caravan (trailer) parks, medical premises, restaurants, petrol stations and pubs for the desperate or the inspired?
Though making up a small percentage of the total property market, alternative assets have gained in popularity over the past few years as investors became concerned that values for traditional assets in the UK were peaking.
But now, with the onset of falling prices in traditional asset classes and the presence of fewer highly leveraged players, attention is once again centering on traditional assets where bargains might be found. One legitimate point of view is that so called “alternative properties” in a falling market will become about as relevant as the HMS Belfast in peacetime.
Though firms such as RREEF will undoubtedly continue to find value in petrol stations and caravan parks, it seems at least as likely that such investors will pile back into offices, industrial and retail opportunistically. They will probably wait a year and see how things pan out before spending much more time on alternative properties.
True, it is impossible to generalize about these alternatives as the term implies so many different types of assets, but IPD data shows some interesting trends. Historically, alternatives have provided similar income returns, but far better capital growth than all property. However, in the past year, total returns have been falling for all property and alternatives (IPD's total returns index might not be the best property benchmark for unlisted highly geared private equity funds, but an important indicator nevertheless).
What everyone is trying to spot is an alternative asset class that enters the mainstream. Retail warehouses achieved this between the 1970s and 2000 when they transformed from uninspired solo industrial sheds occupied by home improvement retailers and carpet shops into modern large-scale retail parks packed with fashion shops. Cap values and rents rose thanks to tightening planning regimes and soaring demand among retailers for larger sales space and associated carparks.
But spotting the next big thing is a difficult sport, and investing in a hunch might not deliver attractive risk, reward ratios.
As more investors examine offices, retail and industrial for opportunities, it may not be time to abandon the alternative ship, but it may be time to put her into port.