Globalisation gaining ground
Alan Greenspan, former chairman of the Federal Reserve, was certainly the most well-known speaker at the recent AFIRE annual membership meeting held in Boston. Answering questions as if in front of a Congressional committee, Greenspan gave the audience well-thought out and much clearer answers than might be expected from the master of "Greenspeak." In one instance he quoted part of a testimony he gave in public while chairman and then told the AFIRE audience what he really meant was "uh-oh".
"If the economy is sufficiently flexible the shocks of bad leverage can be absorbed," he said. He also noted that "too much regulation would be dangerous because it would make the system too rigid."
Greenspan was not the only well known and accomplished speaker on the programme. Completing the democratisation theme carried throughout AFIRE's programme year, the annual membership meeting concentrated on globalisation of the industry. Globalisation is certainly not a new concept to this group of international real estate investors, but recent trends have changed how and where they invest.
The meeting kicked off with a Sunday evening reception at the John F. Kennedy Presidential Library and Museum. The first day of the conference focused on globalisation trends in real estate with a healthy dose of how to do it right. Global capital flows were examined and "on the ground" experiences were shared by international investors in China, India and Emerging Europe. The day wrapped up with smaller case study groups of actual investments that had occurred within the past two years both in the US and elsewhere.
Noble Carpenter, international director of the International Capital Group at Jones Lang LaSalle pointed to the increasing global transparency as a major investment driver. He noted that the principal investment markets in Europe are the UK, Germany, France and Sweden. The UK and France offer opportunities mostly in the office sector while Germany has opportunities in retail and residential. He also emphasised growing pricing parity among major and not-so-major cities.
Marvin Zonis, professor at the Graduate School of Business, University of Chicago, highlighted the fact that 90% of new-issuance treasury is bought by non-US citizens who also hold 50% of current stock. "There is a fear that non-US investors will come round to the view that a US$-denominated asset is not a solid asset," he said. Zonis added that the main risks are failing states and that "political stability is crucial."
Non-US markets generated much discussion at the conference. Panellist Ian Hawksworth, managing director of Capital and Counties, pointed to the difficulty of repatriating profits from investments in China. "It is a major challenge," he said. "Furthermore a proper calculation of the risks is not possible in China - there are too many unknowns. You must develop a local operation."
Brian Newman, principal at Merrill Lynch noted the good prospects for the office sector in India. "The country's 2.5m graduates annually - all from good universities - will boost the demand for the sector." He also drew attention to residential opportunities in some of India's second cities.
Daniel Harris, vice president at Macquarie Global Property advisers provided some insight into emerging European economies. "With 20 different tax systems how can you achieve harmony?" he said.
He added that Poland is expected to become the eighth largest market in Europe - and with that the ‘powerhouse' of new Europe. He noted that there is no risk premium to be found in countries set to join the Euro, "but there are opportunities to rework the stock." Harris stressed that perception plays a significant role in the investment decisions. "The bombs in Turkey were minor incidents but investors react by saying that they don't have to go there. Attitudes change quickly."
Hawksworth agreed: "don't get caught up in short term sentiment. Turkey is full of lots of young people who want to get on in life."
The second day of the conference concentrated on a review of the US real estate market from a research perspective and then from the viewpoint of active investors. A rousing final panel debated market data and what it means for investors, expressing some clear differences in investment strategies.
Janice Stanton, senior managing director at Cushman & Wakefield Investors pointed out that "real estate is trouncing other asset classes. Pension funds are increasing their allocations; a 1% increase means a $600bn increase in capital flows which can really impact on pricing."
She also noted that real estate capital flows are driving investment activity in the US 2005/6.
"Office remains the strongest of property types in terms of deal volume," she said. "Bidders today are active across all sectors - public, private, domestic, and international, in particular middle eastern money."
She added that secondary and tertiary cities such as Phoenix and Dallas are experiencing very high trading volume. "The most volatile market is San Francisco because of the tech crash," she said. "But Washington DC and New York City have the highest rents and lowest rates of vacancy. So the prime terrorist targets are also the strongest real estate investment markets."
The 2007 officers of AFIRE were announced with Mark Preston taking over the helm as chairman. Mr Preston is the chief executive officer - Britain and Ireland for Grosvenor in London. Karin Shewer, Real Estate Capital Partners in New York, was named deputy chairman. Treasurer is Yvon Tessier, SITQ in Montreal, and corporate secretary is Werner Sohier, PGGM in Zeist.
The Winter conference dates of 7-8 February in New York City were announced along with former mayor Rudy Giuliani as guest speaker. The 2007 AFIRE Outreach Conference will be held in Dubai on 11-12 April in conjunction with the Union of Arab Banks.