GreenOak invests globally, but our firm has been most active in Europe over the past few years. We have seen better relative value on the Continent, in particular starting in 2015 when we found much of the US and the UK – especially New York City and London – to be expensive. The focus was on Spain in the beginning, and that grew to include Italy, France and, selectively, Benelux. The primary asset class of focus in Europe has been, and continues to be, logistics; to date, we have acquired more than 30 million square feet across these markets and the pipeline continues to be robust.
Compared with the US, the market in Europe is much more fragmented. This allows investors in a position to acquire, stabilize and aggregate an opportunity to outperform. There is half the supply per capita in Europe versus the US. As a result, comparable yields are 100-200 basis points wider than in the US.
Another strategy we really like in Europe is lending. Again, relative to the US, the market is much more fragmented, traditionally led by banks with limited CMBS or other structured products available. The non-bank financial market is more shallow than the US, which provides spreads that are 100-200bps wider for comparable risk.
To date, Japan has been our primary focus in Asia. When we founded GreenOak in 2010, our simple slogan was we wanted to go “Long New York, London and Tokyo” and “Short Shanghai, Mumbai and Dubai”. We saw much more attractive relative value in the developed markets that had been hit hardest by the global financial crisis. The emerging markets of China and India had not repriced to the same degree and we were concerned about increasing supply and restrictive government policy. In hindsight, we believe we made the right relative call and continue to find attractive relative value in Japan, particularly in purchasing assets from corporate sellers where there is an opportunity for value-add repositioning.
We have also been actively investing in South Korea and expect to do more there. Hong Kong and Singapore are highly cyclical markets and both are feeling some downward pressure at this time, which could lead to a more attractive entry point. Finally, India is much more interesting today, particularly given a number of the reforms pushed by the Modi government.
The US market is perhaps the most difficult to invest in today. We believe some of the markets, led by NYC, have been repricing downward since the market peak in 2015-16. The repricing has been moderate but continues, especially for those assets without either significant downside protection or some ability to enhance value. The issue has been exacerbated by a significant increase in supply in certain markets. New York alone has numerous new office and multifamily properties being delivered over the next few years.
We have focused on well-located assets in need of repositioning in major gateway cities such as NYC, Boston, Washington DC, Los Angeles, San Francisco and Seattle. A variety of industries, including technology and finance, continue to drive employment in those markets, particularly among millennials. Multifamily and office remain our primary focus areas, but we will also consider selectively retail and lodging. There is scope for some more defensive opportunities in the US at this point in the cycle, including lower risk/return equity strategies and real estate credit. One issue is competition, so a differentiated approach will be critical.
Like any time in a market cycle, the situation is never fully black or white. Even when valuations appear high, there are often compelling investment opportunities if one has the right sourcing angles, asset management capabilities and focus on sectors or strategies with appropriate downside protection. We do believe interesting investment opportunities exist across equity and debt strategies around the world. Where, when and how remain the key questions to ask when considering opportunities.