ULI Conference: Real estate the “least bad” asset

Real estate is winning out over other asset classes despite the steady increase in pricing over the past two years due to its relatively higher yields, delegates at the Urban Land Institute’s annual conference in Paris heard today.

Speaking as part of a panel dubbed “Follow the money? – Global Real Estate Capital” Jack Chandler, chairman of Blackrock Realty Advisors, said that investors saw the asset class as more palatable than bonds or gilts, some of which were providing a negative return subject to inflation.

“We have clients who come to us and ask us to figure out how alternative asset classes are comparing with each other. When I get together with my partners in the other alternative sectors the same is true [in their sectors] – (but)  it is better to be a seller than a buyer, people are struggling to put new money out,” he said.

“A lot of big investors are looking to flee from fixed income investing into ‘unconstrained fixed income’, which is code for saying “Please, we don’t want to buy any more treasuries or gilts. Can’t we buy something where we can get our money back?’… There’s an awful lot of money fleeing other things as much as coming to real estate and a lot of capital sees real estate as the least bad of a range of opportunities.”

Chandler also suggested that the European Central Bank’s announcement earlier this month, that it would undertake a quantitative easing programme and buy €60bn of bonds each month until at least September 2016, was helping the European property market.

“We think capital flows into real estate will actually accelerate. Everybody knows that quantitative easing is great for financial assets and investors saw what it did the other side of the pond and have figured out it will have the same effect on this side of the pond, even without growth. The good news is that there’s a lot of money, the bad news is that there’s a lot more competition,” he added.

Europe’s real estate market still continues to provide returns that may be higher than in the US and are certainly higher than in key Asian cities, which has resulted in sustained interest.

“The first wave of Chinese institutional investors are coming. They are flooded with liquidity and it is just beginning. That flood of liquidity will drive pricing,” said Goodwin Gaw, chairman, managing principal and founder of Gaw Capital.

Despite this optimism there were concerns bubbling under the surface relating to the continent’s lack of economic growth, a possible ‘Grexit’ (Greece exiting the euro), geo-political tensions in Ukraine and a heightened threat of terrorism.

“Fundamentally the view [of global investors] is that the currency will still remain strong, not as strong as it has been but that a ‘Grexit’ will not necessarily be the catastrophe that we would have seen before,” said Charles Graham, principal at Europa Capital Partners.

“I think there is more risk and more concern and it will be interesting to see whether the flow of capital continues at the same rate as it has in the course of the next 12 to 24 months. I suspect there will be more concern.“