East looking west for real estate debt

Asian investors, thirsty for yield, are looking to real estate debt in Europe and the US, panellists said at the PERE Global Investor Forum in Hong Kong this week.

The appetite for debt seems to have significantly increased, writes Anna Devine of Real Estate Capital’s sister publication Private Debt Investor.   According to panellist Anthony Biddulph, chief executive officer of Capra Global Partners, the trend is reflective of a general increase in allocation to real assets. “I don’t think that [increase in debt allocations] is going to change anytime soon”, he said speaking to an audience comprised of global fund managers, Asian institutional investors and family offices.

Tax changes to real estate investment in the US could contribute to an increased allocation of investment there, Stephen O’Keefe, fund manager at Quadrant Real Estate Advisors, said.

The sheer volume of liquidity means that it is very difficult to deploy capital, all the panellists agreed. In Europe, increased competition from banks and large insurance companies means that the most fruitful strategies will be those which look at deals with risk profiles that the larger lenders simply don’t want to pursue, Biddulph said.

O’Keefe suggested that in order to set themselves apart from banks, managers or investors need to take a longer term view. He said that there was a “real opportunity” for life companies which don’t compete with banks to carve out a niche, but warned it’s essential that underwriting standards are upheld. “The worst thing for an insurance company is to have [a non-performing loan] on their books as then the cost of capital can go through the roof,” O’Keefe said.

Biddulph concurred commenting that underwriting had in fact become even more fundamental since the pre-crisis years of 2005 – 2007. Looking at stock now, compared to the years preceding the crisis, there is a much higher proportion with very little capex investment today, he said.

Masanobu Fujita, head of business development at Diamond Realty Management, said that in Japan it was also difficult to deploy capital, particularly with a well-capitalized banking system. He pointed out that some managers are using lower interest rates to get better returns, presumably leveraging at fund level.