IPF Seminar: The Real Estate Investment Manager of the Future
16
May
2024
The real estate industry is going through what can be defined as a perfect storm: higher interest rates, and inflation; changing occupier trends, demographic and lifestyle changes; the technology revolution and the challenges and opportunities that come with it; ESG regulations and stranded assets.
In this risk-off environment investors are looking for yield and shifting from traditional sectors like offices and retail to less cyclical strategies found in operational real estate. The switch towards alternatives like residential, life sciences and storage will create a pool of operationally stranded properties, no longer fit for purpose. About a third of institutionally owned real estate is set to be repurposed in the next five years, with the most common conversion being from retail and offices to residential and mixed use – both highly operational and customer centric models.
The cost of debt to fund asset turnarounds reached low double digits in 2023, and this adds an additional time bomb to the refinancing risk of existing loan facilities. While the risks are clearly skewed to the downside for investment managers, there is however some upside for asset managers as the right operators can command significant rental premiums. Mixed use hubs are likely to drive further rental upside. These two factors might contribute to sufficient returns to unlock a wave of repurposing projects.
Designing an operational asset requires either an operational owner or close co-operation with an operator. A financially viable project that complies with zero carbon needs efficiency of design (a capital item) as well as efficiency of operation (a revenue item). The latter implies constant re-commissioning, tenant engagement, the development of tenant apps and so on. This explains why the right operator can command a rental premium.
In this seminar we will explore the ways that real estate investment managers can enter the operational real estate space, including both tried and tested.