Jeff Jacobson, chief executive officer of LaSalle Investment Management opened the PERE Europe Summit in London today calling the market a “double-edged sword”, “fascinating”, and “intellectually challenging”.
He said that uncertainty and volatility in the market had gone through since the global financial crisis of 2008 “continued to play out during these times of “unprecedented monetary stimulus” which could both an opportunity but also a curse should firms “navigate it the wrong way”.
The Chicago-based head of LaSalle told delegates that he saw two broad forces at work – the “amazing secular shifts” in technology/e-commerce and the movement of people related to demographics and at the same time, the “remarkable monetary policy” that had been sustained for the past seven years.
He noted the amount of fiscal stimulus being employed by almost every major central bank had led to notional interest rates being almost at zero while at the same time the backdrop was that many countries were struggling to generate growth in the real economy. “All of this has a huge impact on the valuations of assets as investors have surplus liquidity and pension funds look for yield to meet liability requirements,” said Jacobson.
Asset values had risen across the spectrum, with real estate certainly not being left out. Capital had begun to flow in prime markets as capital looked for safety and security. London was a prime example, but capital had been spreading out to many other places, forcing firms to consider whether to pursue core or value add strategies.
He also painted an encouraging picture by saying, “as long as we stay in this environment, real estate remains attractive compared to other alternative asset classes and will continue to attract capital. We can feel it among our clients and our own capital flows. While people are nervous, the lack of alternatives continues to drive capital into real estate.”
Turning his attention specifically to interest rates, he said LaSalle's view was that rates would remain “lower for longer”. In that environment, real estate was likely to perform well, he stated. However, he also observed how economic theory would say this was “not a normal interest rate environment”.
Said Jacobson: “It will not last forever. When it changes, it will have an impact on pricing, liquidity and volatility.”
Jacobson summed up: “The question is how do you position yourself for that while at the same time recognizing that at some point it will change, though in the short term the likelihood of it changing is pretty low.”
The answer for some might be taking more risk as the cycles matures further, but he warned that firms needed to be positioned so that there was no repeat of 2008. “That is something the industry has to be aware of. It has to look at it without being completely afraid or naive.”