Property Profits Beckon for Smart Investors
The subprime crisis may have wiped billions of dollars off the value of global real estate markets, but it is much easier to make money in today's market than a year ago, the joint CEO of RREEF Europe told Reuters.
In an interview at the MIPIM property trade fair, Pierre Cherki said RREEF -- the real estate arm of Deutsche Bank -- would still be a net buyer of property this year as the liquidity shortage forced more of RREEF's debt-driven rivals out of action.
"We are seeing much better opportunities in the market today than we saw in the second part of 2006 and in 2007. Back then, you really had to push all assumptions and hope that the market would stay bright and sunny for the next 10 years, whereas now we are able to acquire good real estate at better prices," said Cherki.
Cherki said RREEF, which owns more than 55 billion euros ($84.5 billion) of real estate in Europe, was beginning to identify value in the UK's stricken commercial property market, where average values have fallen around 15 percent since June.
But he said the greatest buying opportunities could be found in the market where he saw most distress.
"Spain is a market we are watching very carefully. We have been out of the market for the last three to five years, and that could change in 2008 ... because people are now coming to us with deals that fundamentally make a lot of sense," he said.
Think First, Buy Later
Cherki said a swift re-rating of property investment risk was playing into RREEF's equity-rich hands, but he had no specific equity investment target to hit in 2008 and would resist temptation to embark on a rapid acquisitions spree while less well-capitalised competitors sat on the sidelines.
He said RREEF was constantly looking at launching new products and did expect to launch new funds in 2008, but said he was unable to give more detail due to regulatory restrictions.
"We are not under any pressure to invest funds this year ... We would prefer to give investors their money back than invest in a building in a hurry that will be worth less in 12 months time," he said.
He also said he had to consider where tomorrow's value was likely to be, and to reserve adequate firepower to exploit opportunities he expected to find in France and central Europe.
"Nobody is immune to the credit crunch. And we see that for some central and Eastern European markets, that although they are strong fundamentally, local banks have been conservative in lending to real estate as a result of subprime."
"We have seen less activity in the French market, but we haven't seen yet any significant decline in prices ... But we would expect that to happen, at some time, because even though the French market has been traditionally seen as a safe haven, the participants are being affected by the same issues," he said.
Cherki said Europe's real estate market was in a necessary cooling phase, which was helping fund managers refocus on achieving growth via asset management skill rather than multi-billion euro acquisitions.
"We definitely need to show investors how we create value. And before we even think about where and how much to invest next, we need to spend even more time thinking about how we improve the value of more than 20 billion euros of assets we already have," he said.
Despite seeing a wealth of acquisition opportunities spanning listed real estate securities as well as direct property markets, Cherki warned that double-digit depreciation in price did not necessarily mean an asset was now good value.
"The worst thing we could do is to invest money just for the sake of investing money," he said.