Editor’s letter: Will US interest rate rise be Christmas gift for property?

Andy Thomson

Heading towards the end of 2015, what possible new scenarios might be on the horizon? As we went to press, one was already looming large in the rear-view mirror: the increasing prospect of a rise in US interest rates.

As I write this, San Francisco Fed President John Williams is being quoted in various media as having told reporters that there is a “strong case” for a rise in December so long as economic data continues in a positive direction.

This news may be greeted with enthusiasm by Mike Nash, senior managing director and global head of Blackstone Real Estate Debt Strategies (BREDS). Speaking on a panel at our inaugural Real Estate Capital New York Forum in November, Nash claimed a rise would “express confidence in the market”. His view was that, with global growth sluggish, there was no immediate danger of rates “skyrocketing”, thereby delivering too big a jolt.

However, even a modest rate rise would not necessarily be received with equanimity by everyone. We discover that market observers believe the US CMBS market is heading for a disappointing end to the year.

An interest rate rise would do little to improve sentiment. “Investors are in no hurry to buy 10-year fixed-rate bonds as interest rates rise if returns go higher in the next few months,” we were told by Mitchell Kiffe, CBRE Capital Markets’ senior managing director of debt and structured finance.

Our main theme this issue is multi-family residential and here there appears to be plenty of optimism. In Germany and the Netherlands, competition to meet growing demand is strong, with a solid economy driving competition for deals from a wide range of sources. In Germany, residential deal volume is expected to hit a record €30bn by the end of this year.

The US market is also buoyant, with a couple of multi-billion-dollar deals wrapped up in October. Government agencies Freddie Mac and Fannie Mae are playing an influential role in ensuring momentum is sustained. In the UK, meanwhile, the market is at an earlier stage – but we hear from Invesco Real Estate on the nature and scale of the opportunity ahead.

This issue also includes two fascinating interviews. With Guggenheim backing, US-based Cain Hoy has launched into development deals in the UK. Jonathan Goldstein and John Cole explain the strategy and how the firm that shares its name with a thoroughbred racehorse stable has managed to be quick out of the starting gate with a number of deals already under its belt.

We also hear the thoughts of M&G property head Alex Jeffrey, who remains convinced that the UK outlook remains strong – especially given his firm’s conservative approach – while acknowledging concerns about a possible market peak and the receding of capital coming into the UK from China.

I am delighted that this is my first issue as editor of Real Estate Capital, having spent five years on sister title Infrastructure Investor. My first task, aside from advising you to turn to the pages that follow, is to wish our readers a wonderful festive break. The next issue (February 2015) will be out in the New Year.