Three major APAC investment opportunities emerging from covid-19

Potential real estate plays are expected to arise from the region’s listed companies, 20% of which are at risk of liquidity pressure, according to CBRE.

The pandemic has caused a sharp decline in real estate transaction activity in Asia-Pacific, but it has also created three major investment opportunities for investors prepared to take advantage of the volatility, according to a report by real estate services firm CBRE.

Equity stake acquisitions in listed REITs

The volatility provides opportunities for investors to access “immediate value” in real estate via equity stake acquisitions. The S&P Asia Pacific REIT Index has rebounded by 45 percent since mid-March, and partial or full stake acquisitions in the region’s listed office real estate investment trusts or diversified REITs remain attractive to investors as many are still trading at net asset value discounts of up to 30 percent. Private equity real estate firms that have capitalized on public market volatility include Blackstone, which purchased a 10 percent stake in Australian casino operator Crown Resorts in April at a discount of 5.2 percent to the company’s previous-day closing price.

Sale and leaseback deals with cash-strapped owner-occupiers

More owner-occupiers are adopting a sale and leaseback strategy to raise capital and maintain cashflow in the face of the business disruption caused by covid-19. This need for liquidity will provide more opportunities for investors to acquire income-generating assets. Sale and leaseback deals took up 8.6 percent of Asia-Pacific commercial real estate investment volume in the first five months of 2020, a sharp increase from 4.3 percent recorded in the full year of 2018. Most recently, Allianz and Charter Hall paid A$658 million ($435 million; €400 million) to acquire four warehouses from German supermarket chain Aldi via a sale and leaseback agreement as it looked to generate operational capital, according to the report. As PERE reported earlier, the transaction was one of the country’s biggest logistics portfolio transactions in the past five years.

The CBRE estimated around 20 percent of the listed companies in the region are at risk of liquidity pressure and together hold a total of $430 billion worth of real estate on their balance sheets, indicating “further opportunities for sale and leaseback deals in the months ahead.”

Real estate lending opportunities to fill financing gaps

As banks tighten up lending and originate fewer senior loans amid the pandemic, demand will increase for mezzanine financing providers. In China, the covid-induced market volatility is expected to put listed developers under pressure to refinance up to $137 billion in existing corporate bonds in the next three years. The CBRE explained that many developers are already experiencing severe cashflow issues because of short-term debt maturity in the country. In India, the further retreat of local non-banking financial companies after the pandemic has also provided opportunities for foreign real estate investors to fill the financing gap.