Beware of long-term value drivers – The Property Chronicle
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Beware of long-term value drivers

The Fund Manager

Property investors have an unfortunate habit of not looking very far ahead

The real estate sector has a propensity to underestimate change, perhaps because change has historically been at a rather glacial rate within the industry. In my 30 years in the European real estate markets, it has always surprised me how short-term factors almost exclusively colour investment decisions. While not suggesting the immediate future shouldn’t be a critical element of an asset’s evaluation, I would caution that long-term trends (over a time horizon of, say, ten to fifteen years) have the potential to influence materially returns over a standard institutional five- to eight-year hold period.  

I am certain that the number of these long-term trends is increasing, as is their significance. A common catalyst seems to be a combination of technology, demographics, climate change and the application of corporate social responsibility policies that are ever more rapidly influencing the way capitalism evolves in market economies. Let me illustrate the point with an example a long way from real estate.

Major oil companies have some of the most robust financials of any investment sector; for decades they have generated a disproportionate share of UK and US equity dividends. While the basic financials behind these companies have not altered, the last 12-24 months have witnessed a very significant change in sentiment towards the industry that is affecting all areas of its economic footprint. Who could have predicted 24 months ago that several major international banks would declare they would no longer lend to oil exploration and extraction companies? Who could have guessed that a major global investor would release a statement saying it would not invest in assets underpinned by oil companies, citing its corporate social responsibility policy?

The impact on real estate investment is immediate when climate change activists block corporate HQs (for instance, BP’s) and seek to embarrass businesses that deal with such parties (this is despite both BP and Shell investing more than $2.5bn each in renewal energies per annum).  The impact on an investor owning a BP-tenanted property will be increasingly detrimental as the purchaser and banking universe for such buildings shrink. 

The Fund Manager

About Michael Walton

Michael Walton

Michael Walton founded Rynda Property Investors LLP - an independent FCA regulated real estate investment house - in September 2005. Michael is a Chartered Surveyor with over 30 years’ industry experience. His skill-sets include structuring real estate joint ventures and funds in Europe for institutional, shari’ah and high net worth investors and the subsequent deployment of capital. Rynda establishes investment products across the risk spectrum and via local teams proactively manages the assets acquired to maximise net operating incomes and investment performance. Rynda always seeks to back its judgement by co-investing with its clients. Though focusing primarily on Western Europe, Michael is also familiar with both Scandinavian and Middle Eastern markets. Prior to setting up Rynda, he was a Managing Director at Citigroup Property Investors (1998-2005) where he was responsible for all investment strategies throughout Europe. Michael has previously worked at Lazard Brothers & Co. Ltd (1994-1998) and Touche Ross (1992-1994) and holds an MBA from Cass Business School and an MA from the University of Cambridge.

Articles by Michael Walton

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