19 February 2018

Investors do the talking

18 October 08 | Nick Jacobson
Nick Jacobson



Top people have absolute knowledge of their field, they feel self confident, they do not panic and they convey trust to those they refer to. If you add gentleness and humble to that, we arrive to Nick Jacobson Managing Director Investment banking for Real Estate and Lodging at Citibank.

Top people have absolute knowledge of their field, they feel self confident, they do not panic and they convey trust to those they refer to. If you add gentleness and humble to that, we arrive to Nick Jacobson Managing Director Investment banking for Real Estate and Lodging at Citibank.

Nick who is also an executive member of the board of EPRA honored us as keynote speaker during the 3rd International RE+D Symposium. Besides we had the opportunity to talk about: Economics & Markets, Real Estate Fundamentals and The listed Real Estate Sector

Will it get worse before it gets better? Is the end in sight yet?
I think that it could get worse before it gets any better. The market opportunity is there, but we have to wait for the volatility and correction dominating the markets to stabilize. And I think this may take some time, maybe even two years where the real estate markets are concerned.

Who benefits from this crisis?

It is not evident that anybody is going to benefit now. Τhose yet to invest and awaiting future opportunities, may very well benefit because the values would have fallen by then. But until then, if you have investments, you are probably going to find that you are losing money, so it's cyclical. But in two years plus, opportunities will arise again.

Can we still talk about healthy fundamentals? Or is the whole thing a house of falling cards?
I think that it all depends on where your money is and your investment timeframe. But certainly there is no difficulty in the fundamentals. We haven't seen a crisis in the real estate markets that we have seen in financials. Residential is a problem in the US and in the UK, but it's not really a big issue in Greece. The fundamentals in this market remain quite robust and quite stable. The issue here is not fundamentals based, it's more sentiment and the financing availability.

Do you see investment opportunities in the so called BRIC countries or is it a myth?
I think that opportunities certainly exist in the emerging markets, but those markets are not immune from what's happening. In Russia for example, we've seen the financial crisis take effect and that is having an immediate impact upon valuations. China has also seen drops in the real estate market, in some cases extremely steep, 20-30% down in a 3 month period. So, I think that opportunities are there, but one should allow for market recovery.

How are the various groups of investors reacting, institutions, private equity funds, private investors?
Investors are all sort of behaving in similar patterns today. They are all waiting for the volatility to upside. Some investors, the private equity investors, are going to change their appetite away from equities, to focus on debt markets, as there will be some significant distress debts investment opportunities. But that's a very sophisticated level of investment and not everybody will be able to do that. Most investors though, are in a "wait and see" mode. They are going to see further declines, before they feel that it's safe to reinvest. Most of them are facing significant losses in their own books which means that it's unlikely to allocate new capital into those who've recovered.

How will the stricter lending criteria impact on the market?
It's going to have an impact on people's appetite. Previously, you would have needed less equity and the banks would provide 80% to 90% of the required capital. Those numbers are now probably down to 60%-65%, and you are going to have to put in more equity. That means the returns you are going to get are lower, and the leverage effect is lighter. That's going to mean that people price things a lot lower, and their return expectations are also going to be lower.

How would you structure a new portfolio in the middle of the crisis?
I would be defensive. I would move my investment criteria where there are significantly cash paying opportunities. I would also be looking for high levels of value accretion or growth; I would look for opportunities in the more defensive classes, like large shopping centers, which are also quite diversified. And I would try to move out of the more volatile sectors, particularly those that have smaller and shorter leases and move towards longer leases in more stable asset classes.

REITs were hit more than other property stocks. We see discounts to NAV reaching 30%-40%. Do you expect further drops?
I do. I think REITs haven't bottomed yet. REITs offer investors liquidity and the reason they have dropped so low is because people like the liquidity. They can sell. A REIT regime is a very liquid asset class and if you've got the opportunity to get out of a falling market, you go out when you can, which is being why REITs are being heavily sold. But I don't think we are there yet. REITs are still on the way down in some markets. In the US, interestingly, they are starting to revive as people look at them as a kind of save haven and more predictable. The larger caps, Simon Property Group, etc, are actually attracting capital, they are rising. But that's quite unusual.

Would you consider wiser to invest in direct property or non listed funds?
I am a believer in listed markets because of the liquidity and the regulated nature of them and the governance involved. But right now it's tough because those stocks are declining, whereas in the direct market where there is no regular market to market in a daily basis, your values don't look as bad. But in reality they are pretty close, because when you try to sell a direct asset you are going to find that it's going to price very close to what the REIT discounts are.

Do you expect a new round of hostile M&A's from investors such as sovereign funds?
I don't actually. I think the sovereigns are going to wait. They'll put their money on the table in times where there is more stability, even though there is obviously enormous amount of capital out there. That capital is nervous and they are going to really wait and see. I think that you are not going to see much activity from the sovereigns and the primary players and the private equity business until probably the middle of the end of 2009.

EPRA is expanding to emerging countries by creating new index. Is it the right timing?
The world is sort of a shrinking place at the moment and everybody is interested in expanding their investment universe beyond the traditional markets and I encourage people to do that. Encourages all levels of discipline and the quality of measuring and valuing assets. I think the timing is not good right now, because people are less inclined to put their money into smaller, thinner markets, in the emerging markets. But they will come back. And this work will be well placed in the years to come.

How close we are to the pan-European REIT regime?
I don't think that we are going to get a pan-European REIT. Brussels is quite nervous about the issue of various countries within the EU. They are nervous about taxing harmony and therefore they are quite defensive, so I think that you are not going to see a pan-European REIT, I think you are going to see greater cross-border harmony, harmonization across double tax agreements. But I doubt we are going to get to a pan-European REIT actually.

What are your comments on the Symposium?
I thoroughly enjoyed this. I was impressed by the quality of the preparation, the quality of the speakers, which was very high. Some very impressive people. And overall I commend the organization on a well-organized event and a tremendous venue.


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