Magazine article Mortgage Banking

A Small World: Global Capital Markets Mean Real Estate Investors Worldwide Often Share the Same Concerns and Insights about Market Opportunities. We Tracked Down Some of the Best and Asked Them for Their Thoughts on Where Markets Are Going on Both Sides of the Atlantic

Magazine article Mortgage Banking

A Small World: Global Capital Markets Mean Real Estate Investors Worldwide Often Share the Same Concerns and Insights about Market Opportunities. We Tracked Down Some of the Best and Asked Them for Their Thoughts on Where Markets Are Going on Both Sides of the Atlantic

Article excerpt

IT'S SORT OF A XENOPHOBE'S WORST NIGHTMARE: YOU CAN'T KEEP foreign investors out of any domestic real estate market, anywhere on the globe. An international commercial real estate community has truly developed in the past decade; though ironically, property markets remain characteristically local in nature. * As real estate investors scour the globe for yield and value, the outlooks shared by industry leaders on both sides of the Atlantic have become remarkably similar. They all understand, for example, no one can hide from the consequences of global financial crises. A case in point, cited over and over: the 1998 Russian bond default and ruble free-fall, which led to interest-rate spikes around the world and the evaporation of funding for real estate debt transactions. * Real estate investors realize global capital markets tend to make their trends the other guy's too. One such current trend is too much capital chasing product. Investors' perspectives, however, vary somewhat depending on which side of the Atlantic they sit. Those sitting on the Old World side look to policy-makers in the United States to put the brakes, however lightly, on this phenomenon.

[ILLUSTRATION OMITTED]

"I'm trying to will America on, to put up her interest rates and flush out the dumb money in real estate," says Robert Wolstenholme, director of Resolution Property plc, London. He's been having some minor success with the Federal Reserve's recent hikes in the federal funds rate target.

Resolution Property manages European real estate funds for British and international investors, and has begun raising up to [pounds sterling]300 million for a new fund. "We've ended up almost entirely with investors outside the United Kingdom," says Wolstenholme. Thus precipitating this insight: "New York is similar to London. There is a crush of capital, and both are lousy occupier markets. Southern England is a lot like Silicon Valley, with a tech overhang of space in occupier hands. So the strategy is universal: You've got to get in at the right price.

"It's the same in the U.K., Europe and the States: You must diversify in real estate investing to survive the frothy amount of institutional cash looking to find a home," Wolstenholme says. "Institutions have a great herd mentality, in search of low risk, income and long leases. And, voila, prices are bid up."

Much like NATO members during the Cold War, members of this "Atlantic Alliance" in commercial real estate are on the same page when discussing strategy and shifting fundamentals.

Echoing across the pond is talk of normalcy returning to real estate after more than a decade of crash-and-burn episodes and phoenix-like revivals (courtesy of historically low interest and cap rates). In this more stable climate, property has been emerging as a "legitimate" and favored asset class for institutional investors. "Repricing" has become a favored term in the context that real estate will continue to successfully compete with equities and bonds in institutional portfolios.

"I've never seen so much capital ever in property markets," says Michael Strong, European chairman of CB Richard Ellis, London. "But what we are actually witnessing is real estate being re-evaluated as an asset and returning to its normal returns and valuations. It had been held back for a while by dramatic moves in the cycle."

Jeffrey Hudson, chief executive officer of George Elkins Mortgage Banking Co., Los Angeles, points out: "Commercial real estate in the past three years has been the most attractive of the three investment classes that include equities and bonds. It was more stable and had higher returns. That's why so much money has been available. Now equities are becoming more attractive, but not because real estate is falling out of favor as interest rates move up. I think real estate over the next year will occupy a position between stocks and bonds for investors. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.