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Brexit, multifamily growth key issues for European CRE experts – Real Estate News EXchange

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Investors considering the European real estate market received insights from a panel of experts at the Global Property Market conference recently at the Metro Toronto Convention Centre.

Following are highlights of what the representatives from six companies, all active in European real estate investment, had to share with the audience.

M&G Real Estate

Panelists discuss European real estate investment opportunities and strategies at the Global Property Market conference in Toronto on Dec. 3, 2019. (Steve McLean RENX)

“U.S. investors tend to look for high risks and high returns when they go overseas,” said Tony Brown, global head of real estate for London, England-based asset owner and manager M&G Real Estate. “Japanese do the same. It depends on what part of the world you’re from what your attitude is toward international real estate.”

London is still the top city for real estate investment in Europe, but Brexit has had a negative impact.

Brown said there had been almost no overseas investment in London this year due to Brexit uncertainty, but he believes the city presents the “biggest single opportunity in Europe right now.”

The election of a majority Conservative government under Boris Johnson is likely to ease that uncertainty, adding to London’s appeal.

M&G’s focus is the United Kingdom and Europe is part of its international allocation. Brown said there are pockets of strong office rental growth in Europe because not much new space has been created in many CBDs during the past 10 years. In addition some older office buildings are being converted to hotels, or residential uses due to housing shortages in the U.K. and other major cities in continental Europe.

JLL EMEA

Matthew Richards, chief executive officer of capital markets for commercial property and investment management services provider JLL EMEA, said:

* there’s a “massive focus” on Germany due to capitalization rate compression;

* the story in Nordic countries remains positive, as there are opportunities in Stockholm, Sweden and rental growth remains very strong;

* and France is the “real darling of the market right now” due to macro-economic issues.

Richards said investment in student housing is more than US$10 billion in the United States, US$4 billion in the U.K. and US$1.5 billion in continental Europe. There’s accommodation for just 10 per cent of 19 million European university students, according to Richards, creating an area of opportunity.

Richards said investors looking for opportunistic returns in Europe are focused on development. Sustainability is also becoming more important in European real estate, and should be an investment consideration.

Canadian investors have a close community of people who’ve already invested in Europe. Richards said they should try and use those relationships to learn more about it.

Ivanhoe Cambridge

Ivanhoe Cambridgé head of Europe and Asia-Pacific Karim Habra said a common theme in gateway cities in Europe is a shortage of quality space, especially in the office sector.

“Whenever someone’s looking for class-A office space, the vacancy is almost zero. This is true for all of the cities. It’s true for Milan, Madrid, Berlin, Paris and every single city.”

Habra said Montreal-headquartered Ivanhoé Cambridge can invest and create value in different ways in Europe, including buying properties directly, setting up platforms and doing joint ventures.

“We wouldn’t do small investments if we didn’t see any growth. In some sectors you’re not going to find critical mass from Day One, so we bet on platforms with operating partners that we can help to grow in the future.”

Ivanhoé Cambridge invests in operating businesses as well as real estate in Europe.

“We will not buy stand-alone hotels because we don’t feel that they capture the full value,” said Habra. “So we go and buy the whole company. We buy the know-how, the rent, the people, the assets and the pipeline. In this way we capture the whole value-creation chain.”

Habra emphasized foreign investors must go into Europe with passion and conviction or they’re wasting their time in the competitive real estate market. He suggested focusing on fewer strategies and ensuring they have the right partners early in the process.

Habra’s final recommendation was to see Europe as a diversification play; and not compare returns and investment strategies with their home markets.

Apache Capital Partners

Apache Capital Partners co-founder and managing director Richard Jackson said Brexit concerns have left some potential investors sitting on the sidelines.

The London-headquartered private real estate investment management firm has multifamily, single-family and seniors living platforms. He said they’re supported by long-term demographic trends, and an increasing number of people are renting for affordability and lifestyle reasons. Jackson believes these defensive investments are recession-proof because people will always need a roof over their heads.

Apache has a pipeline of 6,000 multifamily units and is developing class-A-type products, which hasn’t previously been done in the U.K. Jackson said 14 million people rent housing in the U.K., and that will increase to 17 million by 2025.

Jackson noted just one per cent of residential rental properties in the U.K. are owned by institutions, although that is beginning to rise. Large-scale multifamily residential owners in the U.K. have a lot to learn from their counterparts in North America, where the sector is more established.

“We’ve set up our own operational platform where we’ve trained our own staff that come from a range of property backgrounds and hospitality backgrounds to try and instil that culture and genuine service,” said Jackson.

MARCOL

Rebekah Tobias is the head of business development for MARCOL, a family office that’s acted as an owner, operator, developer, asset manager and joint venture partner in the U.K. for 44 years. She said the firm, which has four European offices, has flexible capital without return criteria and doesn’t need to deploy funds within any set period of time, which allows it to be extremely selective.

“We can take a lot of risk on the operational side of the business, which is where we really find value and where we can create value. We’re not buying stabilized assets. That’s never really been a strategy of ours.”

Tobias said MARCOL didn’t sit back and wait for Brexit the situation to become more clear.

“We’ve seen yields in London that look incredibly cheap compared to the rest of Europe,” she said.

Tobias said multifamily residential is becoming a much bigger asset class in the U.K. MARCOL is also now backing a co-living platform, which bridges the gap between student housing and the multifamily residential market.

MARCOL is doing more in the healthcare real estate space to diversify its portfolio and realize growth opportunities. It’s backing a self-storage operator in Germany and building new sites in growth markets there.

“You just have to be able to roll your sleeves up and get your hands dirty with a lot of these platforms, and obviously back the right people to be able to deliver the strategy,” said Tobias. “If you have a unique skill set in a growing sector in the U.S., there’s a significant opportunity to bring that to Europe.

“But you have to be very mindful of the nuances and cultural changes and mentality, in particular as it relates to city, country and Europe as a whole.”

AXA IM – Real Assets

AXA IM – Real Assets provides investment capabilities in equity and debt, across different geographies and sectors, via private or listed instruments. It manages €15 billion in residential assets including student accommodations, multi-family residential and seniors housing in 11 countries.

Global head of research and strategy for real assets Justin Curlow said these defensive housing investments are underinvested in Europe. This “provides an attractive opportunity to build scale and build on the inefficiencies and build relationships with those standing operators, to really grow this sector into what we see is already a well-established sector in the U.S.”

European real estate investment is fragmented, less transparent than in North America, and difficult from regulatory and legal standpoints. That makes having a local presence, knowledge, and relationships all the more important, Curlow said.

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Former B.C. Realtor has licence cancelled, $130K in penalties for role in mortgage fraud

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The provincial regulator responsible for policing B.C.’s real estate industry has ordered a former Realtor to pay $130,000 and cancelled her licence after determining that she committed a variety of professional misconduct.

Rashin Rohani surrendered her licence in December 2023, but the BC Financial Services Authority’s chief hearing officer Andrew Pendray determined that it should nevertheless be cancelled as a signal to other licensees that “repetitive participation in deceptive schemes” will result in “significant” punishment.

He also ordered her to pay a $40,000 administrative penalty and $90,000 in enforcement expenses. Pendray explained his rationale for the penalties in a sanctions decision issued on May 17. The decision was published on the BCFSA website Wednesday.

Rohani’s misconduct occurred over a period of several years, and came in two distinct flavours, according to the decision.

Pendray found she had submitted mortgage applications for five different properties that she either owned or was purchasing, providing falsified income information on each one.

Each of these applications was submitted using a person referred to in the decision as “Individual 1” as a mortgage broker. Individual 1 was not a registered mortgage broker and – by the later applications – Rohani either knew or ought to have known this was the case, according to the decision.

All of that constituted “conduct unbecoming” under B.C.’s Real Estate Services Act, Pendray concluded.

Separately, Rohani also referred six clients to Individual 1 when she knew or ought to have known he wasn’t a registered mortgage broker, and she received or anticipated receiving a referral fee from Individual 1 for doing so, according to the decision. Rohani did not disclose this financial interest in the referrals to her clients.

Pendray found all of that to constitute professional misconduct under the act.

‘Deceptive’ scheme

The penalties the chief hearing officer chose to impose for this behaviour were less severe than those sought by the BCFSA in the case, but more significant than those Rohani argued she should face.

Rohani submitted that the appropriate penalty for her conduct would be a six-month licence suspension or a $15,000 discipline penalty, plus $20,000 in enforcement expenses.

For its part, the BCFSA asked Pendray to cancel Rohani’s licence and impose a $100,000 discipline penalty plus more than $116,000 in enforcement expenses.

Pendray’s ultimate decision to cancel the licence and impose penalties and expenses totalling $130,000 reflected his assessment of the severity of Rohani’s misconduct.

Unlike other cases referenced by the parties in their submissions, Rohani’s misconduct was not limited to a single transaction involving falsified documents or a series of such transactions during a brief period of time, according to the decision.

“Rather, in this case Ms. Rohani repetitively, over the course of a number of years, elected to personally participate in a deceptive mortgage application scheme for her own benefit, and subsequently, arranged for her clients to participate in the same deceptive mortgage application scheme,” the decision reads.

Pendray further noted that, although Rohani had been licensed for “a significant period of time,” she had only completed a small handful of transactions, according to records from her brokerage.

There were just six transactions on which her brokerage recorded earnings for her between December 2015 and February 2020, according to the decision. Of those six, four were transactions that were found to have involved misconduct or conduct unbecoming.

“In sum, Ms. Rohani’s minimal participation in the real estate industry as a licensee has, for the majority of that minimal participation, involved her engaging in conduct unbecoming involving deceptive practices and professional misconduct,” the decision reads.

According to the decision, Rohani must pay the $40,000 discipline penalty within 90 days of the date it was issued.

 

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Should you wait to buy or sell your home?

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The Bank of Canada is expected to announce its key interest rate decision in less than two weeks. Last month, the bank lowered its key interest rate to 4.7 per cent, marking its first rate cut since March 2020.

CTV Morning Live asked Jason Pilon, broker of Record Pilon Group, whether now is the right time to buy or sell your home.

When it comes to the next interest rate announcement, Pilon says the bank might either lower it further, or just keep it as is.

“The best case scenario we’re seeing is obviously a quarter point. I think more just because of the job numbers that just came out, I think more people are just leading on the fact that they probably just gonna do it in September,” he said. “Either way, what we saw in June, didn’t make a big difference.”

Here are the pros of buying/ selling now:

Pilon suggests locking in the rate right now, if you don’t want to take a risk with interest rates going up in the future.

He says the environment is more predictable right now, noting that the home values are transparent, which is one of the benefits for home sellers.

“Do you want to risk looking at what that looks like down the road? Or do you want to have the comfort in knowing what your house is worth right now?” Pilon said.

And when it comes to buyers, he notes, the competition is not so fierce right now, noting that there are options to choose from.

“You’re in the driver seat right now,” he said while noting the benefits for buyers.

Here are the cons of buying/ selling now:

He says one of the cons would be locking in the rate right now, then seeing a rate cut in the future.

The competition could potentially become fierce, if the bank decides to cut the rate further more, he explained.

He notes that if that happens, the housing crisis will become even worse, as Canada is still dealing with low housing inventory.

An increase in competition would increase the prices of houses, he adds.

Selling or buying too quickly isn’t the best practice, he notes, suggesting that you should take your time and put some thought into it.

Despite all the pros and cons, Pilon says, real estate remains a good investment.

According to the latest Royal LePage House Price Survey for the second quarter of this year, the average home price in Canada is $824,300. That’s up 1.9 per cent from the same time last year, and up 1.5 per cent from the first quarter of 2024.

In the Ottawa Housing Market Report for June 2024, the average price of a home was up 2.4 per cent from this time last year to $686,535, but down 0.6 per cent from May 2024.

Experts believe many potential buyers are still hesitant of jumping into the housing market and waiting for another interest rate cut of 50 to 100 basis points.

“I don’t think it’s going to be the rush that we see in the past, because people are used to more of a conservative approach right now,” said Curtis Fillier, president of the Ottawa Real Estate Board. “I think there’s still a bit of a hold back, but I definitely do think with another rate cut, we’ll probably see a very positive fall market.”

With files from CTV News Ottawa’s Kimberly Fowler

 

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Real estate stocks soar to best day of year on rate cut bets

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(Bloomberg) — The stock market’s worst group notched its best day of the year as a cooler-than-expected inflation report stoked bets that the Federal Reserve will start cutting interest rates in September.

Shares of real estate companies jumped 2.7% Thursday for their biggest gain of 2024, climbing to their highest level since March as investors snapped up homebuilder, digital and commercial real estate stocks alike. Real estate also was the best-performing group in the S&P 500 Index Thursday, with volume that was around 30% higher than the 30-day average, according to data compiled by Bloomberg.

Arguably the most significant news to come from the latest consumer price index reading was a pullback in housing-related inflation. Shelter costs rose just 0.2% for the slowest monthly increase in three years. Homebuilders, which have risen 7.1% this year, were up 7.3% for the session, the most since 2022. Shares of D.R. Horton Inc., which is scheduled to report earnings next Thursday, gained 7.3%.

“Housing has really been the last shoe to drop in terms of winning the battle against high inflation,” Preston Caldwell, chief U.S. economist at Morningstar wrote in a note to clients Thursday. “Leading-edge data has strongly indicated for some time now that a fall in housing inflation was in the works.”

A rally in real estate stocks is bad news for short sellers who have been piling into the group, which is the worst performer in the S&P 500 this year. To start the week, short interest as a percentage of float hovered near 49% in the SPDR Homebuilders ETF, the highest level since February for the exchange-traded fund, according to data from S3 Partners.

Property owners are rallying as well. Real estate investment trusts, which were brutally penalized during the two-year run up in borrowing costs, advanced by as much as 3%. And the outlook for the group appears to have turned a corner, according Rich Hill, senior vice president and head of real estate strategy and research at Cohen & Steers Capital Management.

“We think this is a compelling backdrop for listed REITs especially as fundamental growth remains on solid footing,” he said, referencing the latest inflation data and rate outlook. “The rally that started in October of 2023 pushing returns more than 20% above their trough looks set to continue if inflation cools and interest rates continue to decline.”

Shares of industrial REIT Prologis Inc., which reports second-quarter results on Wednesday, rose 3.3% to hit their highest level since April. U.S. Treasury yields tumbled, with the 10-year bond falling to 4.2% and the policy-sensitive two-year note slipping to 4.5%.

(Updates indexes and stock prices for market close.)

 

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