Anarchy in the UK

Despite the vote to exit the EU, there is a world of potential for property investors in the UK, says Janine Lewis of InvestSure

For the less intrepid UK investor out on the hunt for returns, the current market landscape is pretty unsettled. From the anaemic fixed-income sector to volatile stock markets, yield is an unpredictable beast. It is tricky to find and capture those that are stable across traditional asset classes. With Brexit continuing to cast a cloud of uncertainty over the economy, finding a steady flow of more secure, asset-backed opportunities is going to be key for constancy.

In fact, one of the few areas of the economy where Brexit has actually had a tangible impact is on the commercial property fund market, with three major funds being forced to suspend withdrawals due to nervy investors looking to take money out.

And yet, somewhat paradoxically, investors looking for better yields and a lower-risk asset to invest in, given the current economic climate, may actually find the answer in property development.

No need to panic

The decision of the property funds to suspend withdrawals isn’t, of itself, as negative as it may seem. Suspending withdrawals is a necessity for commercial property funds in such a scenario. Funding a rush of withdrawals will require the sale of relatively illiquid assets, and time is needed to do this. Otherwise the funds would be forced to sell assets at fire-sale prices, which would simply depress the fund’s value further and prompt more withdrawals, creating a vicious circle.

And there is every sign that this is a case of a short-term shock caused by anxious investors, rather than anything deeper. Brexit is unlikely to meaningfully affect any of the big picture fundamentals that make British property an attractive destination for global capital. The long-term factors driving demand—the relative stability and maturity of the market, the great infrastructure, a rising population set against an acute housing shortage—are unlikely to shift, and do not depend upon British membership of the EU.

We continue to see positive investment news in the UK property market. Developer Bericote Properties agreed a £56.3 million forward-funding deal with Tritax Big Box REIT for its development in the West Midlands, and Amazon has continued the expansion of its logistics network in the UK, signing up to occupy the 220,000-square foot Big Stan building in Stoke-on-Trent, as well as rapidly expanding its portfolio with more than 25 urban logistics facilities around the country.

Securing de-risking

What the post-Brexit fallout in the commercial property fund market does illustrate is that investing in property development can be a risky business. Investing in an already-built property with an existing yield is one thing, but investing in property development at earlier stages is another. It is highly complex and generally not suitable for the high-street investor.

This means we also need to explore innovative ways to de-risk this sort of investment. Syndication, for instance, can bring multiple investors together to jointly fund a project, which spreads the risk across a number of investors and reduces the risk taken on by each individual investor.

Syndication as a concept is not completely new, but it has historically been a costly and difficult process, often requiring a lead investor. With the rise of automated online platforms, this need no longer be the case.

Innovative new ways to structure syndicated investments cut out a lot of the logistical pain associated with the process in the past, automating and streamlining as much of the administrative and legal work as possible, for maximum efficiency. These give investors the security of a first charge, which is held by a security trustee, along with administration and quantity surveyor checks and balances, which regulate the capital expenditure.

Of course, the price of lower risk is lower returns. But even so, in today’s low-yield environment, the potential returns would still look very attractive indeed to a large swathe of investors, compared to the alternatives on offer, especially in a post-Brexit environment. In some cases, this approach to syndication can deliver returns of more than treble that of the best UK savings accounts. Developers also benefit from having the freedom required to orchestrate the development.

Unlocking this money for property development could have the dual benefit of providing investors with an attractive balance of yield and risk, while helping small to mid-sized developers to get the funding they need.
The latest features from Real Estate Investment Times
Leo Civelli, CEO of Duff & Phelps Real Estate Advisory Group, discusses the effects of Brexit in the UK, further challenges facing the European markets, and the opportunities that lie in the non-performing loan space
The UK is coming to the end of a turbulent year for real estate, but Paresh Raja of MFS predicts a positive 2018 for those looking to expand their property portfolios
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
In the US, Regulation A has opened up doors for real estate companies and investors of all types, says Robert Kaplan of HC Government Realty Trust
International institutional investors want in on the private rented sector in the UK, says independent property expert Sam Collins
Alternatives continue to see rising demand from institutional investors in the Canadian marketplace. Tim Rourke, vice president of pensions and asset owners at CIBC Mellon, discusses how the country is well placed to meet it
Fund managers expect the private real estate industry to grow over the next three years, but Preqin’s Oliver Senchal warns against market consolidation
New regulations from the ECB have given real estate investors a lot to think about in the non-performing loans market, but appetite remains strong. Theo Andrew reports
Paul Conroy, real assets director at Aztec discusses the relationships behind co-investing and explains why it’s important to make sure it’s not just a marriage of convenience
Country profiles
The latest country profiles from Real Estate Investment Times
Kelly O’Hara and Conor Houlihan of Dillon Eustace discuss the Irish market post-Brexit, and give an update on non-performing loans available in the region
Between Brexit and post-crisis recovery, Frankfurt’s office sector is booming, with particular interest coming from the world’s financial institutions, according to Andreas Krone and Lenny Lemler of NAI apollo
Asset Servicing Times

Visit our sister site
for all the latest asset servicing news and analysis
Africa has long been coveted as the land of real estate opportunity, but more needs to be done at a local level to break the market, heard attendees at the Second West African Real Estate Forum in London
Callum Young of Savills tells Mark Dugdale why South Korea’s real estate market is attracting both domestic and international attention
UBS Asset Management Global Real Estate has launched a new business initiative in Brazil, in partnership with Brazilian consultancy Real Estate Capital. Senior adviser Miose Politi explains
A member of the EU since 2007, Romania boasts a property market that has been on the up ever since. Liviu Tudor of the Romanian Association of Building Owners explains
Alternative allocations are becoming mainstream for institutional investors, and Canadian companies are leading the pack, says Claire Johnson of CIBC Mellon
Amid cross-border restrictions and tightened belts, Luxembourg’s kingdom of real estate investment won’t be crumbling any time soon
The latest interviews from Real Estate Investment Times