EDITOR'S LETTER: Gas or brakes

If you are driving a car and visibility becomes a problem, what do you do? Slow down or stop, surely. But, on the other hand, if you suspect danger is behind, you might keep going, or even speed up. Conversations we had last month lead us to believe there are both types of drivers in the private real estate market right now. 

On one hand, we are hearing of sovereign wealth funds sufficiently concerned about the prospects of Britain leaving the EU that they have placed a moratorium on all London investments until after June when the result of the referendum is known. That is some serious doubt for these traditionally through-cycle investors to turn off from buying in Europe’s capital city.

On the other hand, we are also hearing of Chinese institutions speeding up investment, particularly in the US, as concerns mount over their domestic economy. One school of thought behind Anbang Insurance’s current mega-bid for a strategic share of the American hospitality sector, for instance, is that even if it is overpaying for assets, if the value of its resources later tumbles, it would have been a successful exercise in capital protection.

In Europe, where the annual MIPIM conference in Cannes happened last month, now that interest rates are widely accepted to be low for longer “fixed-income” buyers, as they were termed at one event at the conference, are expected to keep investment volumes high. In keeping, fundraising targets by managers with above average track records are not just meeting fundraising targets, they are smashing them. 

US capital, the sort which significantly capitalized the latest European raisings by Blackstone ($5 billion first closing), Brockton Capital ($1.2 billion) and CBRE Global Investment Partners ($840 million) is opting for markets with arguably worse visibility than at home. And in a quirk of the times, European capital from the likes of Dutch and German pension managers APG and BVK are deploying more in Asia, which arguably has the worse visibility of the three major regions.

And then you have Africa, to which PERE has dedicated a special magazine this month. About the same amount of capital ($1.4 billion) has been raised for private real estate in the region in the last two years as was for the six previous ($1.6 billion). More is being sought for Africa today ($2.4 billion) and that is a market with scant pricing to benchmark against: a case of foot-down in zero visibility. 

Of course, all these instances of courage and caution have their contexts. But they make for good reading nonetheless.