PERE Forum Japan: Managers promote Europe, India

Many panelists at PERE’s first Japan forum extolled the virtues of investing in Japan, but one highlighted Europe’s opportunities while another made the case for India.

Japanese investors should look to Europe for the best distressed real estate debt opportunity in the world, one panelist told the delegates at PERE’s first Japan forum in Tokyo this week.

“Investors today are very scared of Europe so it’s hard to convince anyone to commit to that region,” said Jeremy Plummer, chief executive officer of the multi-manager division of CBRE Global Investors. “I share their concern, but the flipside is price dislocation and distressed opportunities.”

He noted that LPs invested already in funds in Europe are becoming impatient and looking to exit from their fund positions, offering investors the chance to buy into funds with fundamentally good assets and moderate leverage at deep discounts to net asset value.

Meanwhile, it was argued that a shortage of capital in India also presents investors with interesting buying opportunities. With no public equity coming to market, private equity at a cyclical low and a debt landscape consisting primarily of bank loans, the cost of capital in India is high, said Chetan Davé, managing partner and chief executive officer at IDFC Alternatives International.  “If you were to borrow on a class A office building today, the loan-to-value would be 65 percent to 70 percent and the [cost of that debt] would be double digits.”

The drying up of capital creates value for money, he said, adding that the residential and construction sectors were a huge opportunity for investors. In cases where balance sheets are not levered, but have become untenable due to the rise in interest rates, there are gaps in financing projects where mezzanine debt is very attractive play.

Davé addressed the domestic challenges particular to India, such as regulatory changes and a tapering off of GDP. However, he noted that demand has held steady while supply has come off. “The idea is not to be contrarian but to understand the cycle and play the dynamic.”