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First up: UBS’ Thomas Wels

PERE: In terms of the markets you are most active in, are we still on an upward trajectory or have markets peaked?

Thomas Wels: Upward trajectory. The US is our biggest market. It may be flat today, but over a three to five year time horizon it is still growing. Developments there didn’t add enough capacity so even on the appreciation side I see more up than downside. Europe is a recovery story which I believe in. These places make up more than half of my business.

PERE: Is it easier to raise capital or to deploy it wisely?

TW: It is easier to raise money. There is a wall of money from the large pension fund schemes and a lack of alternative investments for them. They are underwhelmed by fixed income and don’t like the volatility of the public markets so real estate is somewhat the last game in town.

PERE: What is the biggest macro threat to the prospects of your business: reduced oil and other commodity prices or the end of government financial stimulus?

TW: Governments never matter in the long run as self-healing processes in economies are always overwhelming. You can destroy an economy a bit, but every decision taken by governments over time ensures self-healing is going to prevail. Oil is a game of left pocket-right pocket. Money not available to the producers is available to the consumer. Low oil prices are actually a good stimulus.

PERE: Which is the most preferable capital: large, long-term, but non-discretionary investors or small, shorter-term but discretionary investors?

TW: I clearly prefer core, long-term discretionary capital. But we don’t get discretionary capital for that so long-term advisory is fine as well. Short-term capital is fickle. I can’t handle fickle money.

PERE: What is the more important measure: current cap rates versus historical rates or the margin over fixed-income alternatives?

TW: The margin over fixed-income alternatives reflects the illiquidity of the asset class and that is more important in my view.

PERE: Is it better to maximise your borrowing potential in today’s cheap debt markets for investments or to reduce debt levels in anticipation of deteriorating markets?

TW: If you believe in deteriorating markets you should not maximize leverage. Since we still believe in further upswings, reasonable leverage is the right way to go. We are actually minimizers of leverage. Across our businesses we are less than 20 percent geared. In the US, we are at 15 percent while the index is at 25 percent. We did a study: if you were investors with us over the last 30 years, you were better with leverage below 20 percent. Otherwise, somewhere along the cycle, you’ll blow up the fund.

PERE: What is more important: a building’s current lease or its ability to be re-let?

TW: The second. We look very carefully into market rents. A lease too high over the market rate could hurt you. Often we’re confronted with sale and leaseback opportunities where the seller is in need of capital. But after the period you may end up with rent levels which are not sustainable or counterparties which can’t afford the rent. Real estate is not a bond. Some investors talk about 20 year leases, but in that time you may lose 30 percent because you have a renovation case on your hands.

PERE: Which is the more attractive tenant: a financial services firm or a tech firm? 

TW: Tech in five years, financial services today.

PERE: Which is the more attractive investment: a primary building in a secondary location or a secondary building in a primary location?

TW: Primary location is always the better choice. I can live with primary location in secondary cities.

PERE: What real estate professionals are most valuable to you today: strong investment professionals or strong asset management professionals?

TW: I’m currently recruiting asset management professionals because I can develop them into portfolio managers and investment managers. They can learn. The others find it harder to go the other way.