Friday Letter Livin' it up at the Hotel Okura

Despite stormy conditions across the global economy, delegates found refuge at the PERE Global Investor Forum in Amsterdam this week. 

This week, seismic responses to global growth fears came thick and fast.

The European Union said it would speed up the recapitalisations of smaller banks, such as those in Spain, Portugal and Germany, that needed funds. Meanwhile, the market responded to promises of assistance by the G20 super-hero group by, well, ignoring them and continuing a huge securities sell-off. Basically, the global economy is still on red alert, with World Bank chief Robert Zoellick yesterday saying it was “in a danger zone”.

In the face of such unbridled, wild forces, it seems almost impossible to try to apply market volatility to unlisted real estate – something that doesn’t move quickly like stocks, rather it just sits there invested in assets that contain people that are producing those wild fluctuations in shares.

Nevertheless, it was against that backdrop that PERE hosted its inaugural Global Investor Forum in the plush surroundings of the Hotel Okura in Amsterdam. And in what amounted to a disconnect between the financial market and the delegates, the conference created a real buzz. Nobody could quite work out whether that was because of the line-up of speakers, the blend of different types of people among the delegates or the networking session on the morning of Day One. Or was it that the event offered insulation from the panic outside?

To adapt a line from rock band the Eagles, we were all just prisoners there, of our own device. Yet, by the end of the first day, there were plenty of smiles, banter and general bonhomie.

Part of the answer, at least, may be because of the insulating qualities of indirect real estate, as opposed to the naked listed sector. It was a point made by one of the investors onstage at the event – Harm-Zwier Medendorp, manager of alternative investments at TKP Investments.

Medendorp explained that he was cautious towards real estate because of the lag effect and because banks had become more conservative in their lending. However, he also hit a happy note, adding that he had not seen any evidence of the Dutch pension fund industry in general either reducing or increasing allocations to real estate since the financial turbulence began three months ago. Just evidence of stability.

Stephen Tross, director of international investors at Bouwinvest, another Dutch group, said it was regulation, specifically rules requiring investors to put aside greater capital in reserve when making indirect investments, that was a more important factor when it comes to real estate allocation. That, and the need to diversify out of the Netherlands real estate market. The limited partners at the event were hardly saying they were going to turn off allocations.

Kurt Roeloffs, global chief investment officer at RREEF, did the most to assuage fears that the property fund sector was going to suffer more. Yes, the denominator effect from flailing equities could slow future allocations, and there were indeed some sovereign wealth funds that were going direct for reasons prior to this current turbulence. However, for every one of those and for every large pension fund in the US doing co-investments, there were plenty of other institutional investors under-allocated to real estate that never got fully invested and are looking to invest now. He cited the China Investment Corporation as a “pragmatic” client using funds and going direct.

On the whole, the good news is that investors need real estate in their portfolios, including unlisted real estate. To borrow another line from the Eagles: “You can check out any time you like, but you can never leave.” Perhaps that is why the vibe at the Hotel Okura was high.