Bathed in late summer sunshine the majestic city of Budapest provided a fitting location for the annual conference of the European Public Real Estate Association.
The seventh Annual EPRA conference was sold out for the fifth year running. The combination of the high quality programme and the senior level network opportunities comprised to formulate a strong attraction for those parties involved in the listed real estate sector. Delegates came from listed real estate companies/funds, investment banks, pension funds, accounting and lawyer companies and universities. This broad backdrop of delegates and participates ensured a wide range of issues could be discussed during the two-day event.
Day one of the conference saw Joseph Azelby of JP Morgan open the programme with his keynote speech. The talk took the audience on a fast track tour of global real estate markets and future opportunities. Azelby also focused on India as a good market for real estate investment given its young and well educated population. Some 51% of the population are under 25, in stark contrast with more developed economies of Europe, the US and especially Japan. Infrastructure will be crucial to its success and some cities, notably Hyderabad, have been overwhelmed because they didn't plan and build their infrastructure in advance of the rush.
The conference also devoted attention to infrastructure and attention was drawn to the similarities between infrastructure and mainstream real estate from an investment perspective.
Like real estate, infrastructure offers core, value added and opportunistic investments: examples of core investments can be found in utilities; airports are examples of value-added opportunities; opportunistic openings can be found in non-OECD infrastructure, among others.
A major impediment to real estate investment in Hungary is that companies that want to buy up the country's crumbling assets are faced with "cumbersome and time-consuming bureaucracy", according to keynote speaker Lajos Bokros, CEO of the Central European University in Budapest. He also painted a picture of the current situation in the central European countries.
The former Hungarian finance minister and World Bank director told IPE Real Estate that the authorities do not want foreign investor "sharks putting their dirty hands on local property. They don't understand that local savings and capital is not sufficient to maintain the assets - and that there is no investment as a result," he said. "Large companies can navigate the system, but not the smaller fish. As a result there are islands of excellence, but the market has not taken off."
Other speakers at the conference included Hans Grönloh of KPMG who announced that the IASB and FASB have agreed to a short-term convergence project. He explained that the two bodies aim to have studied the differences between the two sets of standards and to have agreed a roadmap by 2008. The FASB will study the feasibility of applying the fair value principle to the valuation of assets, including investment property; at present the US uses the cost principle.Grönloh also noted that some 25% of EPRA members still use the cost principle due to being uncomfortable with the fair value principle. However he highlighted the fact that most real estate management companies use a profit and loss account that is in accordance with the EPRA fair value principles.
A survey of conference delegates found that they considered development activity the main factor driving the outperformance of property management companies. It scored highest in terms of share of votes, followed by alignment of interests, analyst support and tax issues including transparency, then sector focus and then geographical focus. It was also stressed that property managers must thoroughly understand the needs of the tenant if they are to outperform the market.
Does leverage enhance return on real estate investments? Tony Ciochetti, chair of the MIT Center for Real Estate challenged this widely held view. He also suggested that, contrary to the view held by many larger asset managers, there is little correlation between size of manager and the length of their track record on the one hand and investment performance on the other, saying that "today's hero is often tomorrow's blockhead". Piet Eichholtz, professor at the University of Maastricht, noted that consistent outperformance by real estate fund managers in public capital markets is difficult because of variations in the efficiency of markets. He also pointed out that private capital markets are less efficient so outperformance may be possible.
Nancy Holland, global head of property at ABN Amro AM drew attention to the fact that some institutional investors are reluctant to invest during a downturn and the resulting need to educate them that a downturn may well be a good time to invest because prices are low.
Adrian Wyatt, CEO of London-based Quintain Estates and Developments challenged the view that governance is necessarily a good thing. He poured cold water on the idea that a director should be replaced just because of the need to comply with the principles of "good" governance - "if he is doing a good job why replace him?" he said. "And why the emphasis on good governance when you can't legislate for integrity?"
The Budapest Museum of Fine Arts proved a memorable venue for the gala dinner were the awards for best annual report 2005, and best performers large and small/mid cap 2005.
EPRA research director Fraser Hughes notes: "One interesting trend over the past three years has been the significant increase in demand from outside Europe. In particular, US companies and investors have added the EPRA conference to their ‘must attend' conference list. Interest is born from US investors taking a broader global approach to real estate allocations and US companies such as Archstone, AMB, and Simon looking to Europe to expand upon their existing US based business. The globalisation of the listed sector is well underway.
"On the whole, the feedback from delegates was good. The 8th annual EPRA conference will be held on 6 and 7 September at the Hotel Grande Bretgne in Athens."
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