For the past few years, commercial real estate has been a no-go zone for investment, devastated by higher interest rates, inflation and the impact of the pandemic on shopping and work.
The general concern was highlighted this week with the cancellation of the IPO of Special Opportunities, a Reit (real estate investment trust) that aimed to acquire “very high quality” properties at rock-bottom prices from distressed sellers and funds. of pensions. seeking to ‘eliminate risks’.
But if you have long horizons and an appetite for risk, this may be an opportune time to examine the opportunities.
Office blocks, for example, are considered an area worth exploring, but only as long as they have cutting-edge technology and impeccable green credentials.
Also essential are “office reality” features that make a workplace much more attractive than working from home.
Timing?: Office blocks are seen as an area worth exploring, but only as long as they have cutting-edge technology and impeccable green credentials.
These include rooftop terraces and luxurious showers and other ‘end of trip’ facilities.
Tenants are increasingly demanding these types of improvements. In April, more than £900 million was wiped out of the value of the Canary Wharf towers in London’s Docklands, largely because some consider the accommodation obsolete. Mark Allan, chief executive of Land Securities Reit, which owns the lights of Piccadilly Circus and conveniently bright, planet-friendly offices in Victoria, says “macroeconomic signs look more encouraging than they have been for some time.”
He adds: “The value of high-quality assets has largely bottomed out and will begin to rise in the foreseeable future as rents rise.”
Some long-established Reits are already on the prowl.
These include data center and warehouse giant Segro (previously known as Slough Estates) and Derwent, whose portfolio spans blocks in Fitzrovia, near London’s West End.
A real estate agent described this neighborhood north of Oxford Street to me as the “on fire” office market.
Fitzrovia’s bars, cafes and Victorian streets have the ‘vibe’ to attract Gen Z workers.
Private equity groups are also dabbling in office blocks and other bargains, while UK, US and European institutions such as Aviva, Axa, Brookfield, M&G and PGIM, a division of insurance giant Prudential, appear to reckon the worst It’s already happened.
They are lending to real estate companies, focusing on data centers, logistics and, of course, luxury office buildings. If this sounds like territory you’d like to venture into, here’s what you need to know.
CAUTION BEFORE ENTERING
Sentiment may have changed, but the backdrop remains complicated and there is potential for further shocks.
As a result, the average discount between a Reit’s share price and its net asset value has lately reached 50 per cent, according to figures from the Association of Investment Companies (AIC).
Although this seems to present a golden opportunity, FundCalibre’s Darius McDermott emphasizes that not all Reits are bargains. He highlights the importance of the “sectoral approach”.
There is more clamor for logistics sheds than street units, which should ensure the trust has enough cash flow in the form of rentals to fund payments – 90 per cent of a Reit’s income must be distributed in dividends.
MERGER MANIA
Some Reits have been liquidated and others are seeking mergers to gain the scale needed to thrive and survive.
Last month, Tritax Big Box acquired UK Commercial Property Reit.
But such is the optimism for the newly expanded £4bn logistics giant (whose tenants include Amazon and Argos) that brokers Jefferies rate Tritax Big Box a “buy” with a target price of 201p, against the current 152 pence.
THE CHOICE OF PROFESSIONALS
Richard Williams of analytics group QuotedData likes Urban Logistics Reit, which trades at a 27 percent discount and specializes in smaller warehouses that serve the “last mile” of the supply chain between a company and its customers. . It’s a segment of the warehouse sector that is “grossly undersupplied,” according to Williams.
TR Property Investment Trust has stakes in Land Securities, London Metric, Segro and a wide range of other assorted Reits in the UK and Europe. The trust is managed by Marcus Phayre-Mudge.
Ben Yearsley of Shore Financial Planning says: “I’d rather leave the choice to Marcus.”
Given that TR Property is discounted by just 8 per cent, you may not be getting a bargain.
But you will enjoy the services of a guide in an area that may be exciting but is still fraught with danger.
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