The Attraction of Investing in Real Estate A journey from the Palm to Park Avenue via London...
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The Attraction of Investing in Real Estate A journey from the Palm to Park Avenue via London Presented by: Richard Johnson Managing Director Istithmar 22 nd November 2006
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Transcript of The Attraction of Investing in Real Estate A journey from the Palm to Park Avenue via London...
The Attraction of Investing in Real Estate A journey from the Palm to Park Avenue via London
Presented by:
Richard Johnson
Managing Director
Istithmar
22nd November 2006
“A journey of a thousand miles begins with a single step”- Traditional Chinese proverb
For international investors - a mix of science and art ?
Source of diversification - a risk adjusted return generator
Real estate as an inflation or deflation hedge
Real estate as a component of the investment universe
Real estate can be a strong cash flow generator
Natural affinity for real estate ?
Ego and “snob” Values
Different perceptions of value – “Because we can”
What makes it attractive – practical aspects
Tool for risk dispersion
Management
Low covariance with gilts / bonds
Illiquidity
Land Based
Locally Specific
Lumpiness
Long term asset
Can be used for different purposes
DISADVANTAGES
High entry barrier
Monopoly value
Costs
High transaction costs
Cannot be moved
Needs Local Expertise
RE ATTRIBUTESADVANTAGES
I can influence asset performance
World Real Estate Value by Region
Total Stock US 7.1 Trillion
Invested Stock USD 2.4 Trillion
Investible Stock USD 4.7 Trillion
Invested Stock USD 4 Trillion
Investible stock USD 5.2 trillion Total stock USD
7.5 Trillion
Invested Stock USD 1.4 Trillion
Investible Stock 2.5
Trillion
Total Stock of USD 4.6 Trillion
Source: RREEF Research
Any time you take a chance you better be sure the rewards are worth the risk because they can put you away just as fast for a $10 heist as they can for a $1,000,000 job.
- Stanley Kubrick
What lies ahead?
Consolidation
Innovative Capital Markets
Further Globalisation
Emergence of newer markets
Continued growth of CMBS and Globalisation of REITs
Wider range of acceptable markets ?
Picking deals and what you get from them
Potential Return
Source: RREEF Research Risk
CoreIRR 12%Leverage
50%
Value Add
IRR 12 - 18%Leverage 30 -
70%
Opportunistic
IRR 18 - 20%Leverage
70%+
- Equity investments in real estate related assets- seeks to capitalise on economic, financial and property market dislocation
- Properties requiring redevelopment- Moderate leverage- Intermediate hold
- Equity investments in stabilised, income producing properties- Low to moderate leverage- Long term hold
Managing investor expectations
Short term sentiment and expectation management…
Create a diversified portfolio
Structure deals using a spread of financial instruments.
Active asset management to unlock value enhancement opportunities.
Monitor portfolio performance through regular reporting and appraisals.
Explore exit strategies to maximise IRR returns.
Global trends spurring greater real estate investment
Globalisation of capital flows
More efficient markets
Tighter tax regimes
Emerging Markets
“Weight” of capital
“Follow the yellow brick road. We’re off to see the Wizard”- EH Harburg – The Wizard of Oz
Emirates Towers, Level 4, Sheikh Zayed Road, PO Box 17000. Dubai, United Arab Emirates
www.Istithmar.ae
