We’re joined by Richard Barkham, who’s a Group Research Director of Grosvenor Group and also non-executive director of Grosvenor Fund Management, Tom Cantwell, who’s a Partner in DLA Piper’s Property Group and Richard Butler, who’s Senior Managing Director of International Investments at CBRE. Gentlemen welcome to BRR Media.
Well gents we’re looking at whether Australian super funds should be investing in property offshore, and Tom I’d like to start with you and get a bit of an introduction, why should Australian super funds be looking offshore?
Well there’s three main things that are going to drive the super funds offshore; firstly there’s the increase in superannuation contributions which are going to roll from 9% through to 12% and 15% over the next few years is going to see the total contributions to super reaching up to $3 trillion dollars over the next 10 years, which if the funds maintain their allocations to property it will mean they’ve got up to $300 billion to spend in the property sector, and the Australian market simply isn’t that big. So they will need to go offshore to actually – to invest that over the next 10 years, and you know you’ve got the weight of money coming in from offshore into the Australian market they’re also competing with.
And Richard Butler from CBRE if I can bring you here, who do you see as the key overseas institutional investors competing in the real estate market?
Inbound into Australia we’re seeing, and it’s a long list but I’ll make it as quick as I can, we’ve got Credit Suisse, which is pension funds who’ve bought four bil. and we’re now buying two more for them in New Zealand and Perth. You’ve got NPS who’ve come in through Heitman, so they’ve got various managers and extremely active. PNB which is a very big pension fund, Perbadanan Nasional Berhad from Malaysia. Crop is very active and have bought the Stock Exchange Building, you’ve got CIMB which has the EPF from Malaysia and Crop, they’ve bought four assets now. CPPIB have clearly taken almost half of Barangaroo which is a billion or so, so that’s impact full. Another one is obviously DECCA who still hold four assets down here; finally the interesting one was Fidelity/Pembroke who bought 20 Martin Place from us, $495 million to spend $120 on it. So that’s – and we are seeing basically when we offer a property the offshore people are all over us like a rash and the Australians are hesitating and I think that’s an opportunity for the offshores at the moment.
Well Richard Barkham probably a good time to bring you in here, and look at globalisation, how do you see this as having an impact on the property sector?
Well I think property has traditionally been a local business, but I think more than ever real estate is dominated by big capital flows. I mean we were already talking about that with investors; local investors are more and more coming up against big investors from overseas. So I think that what that means is you really have to know what you’re doing in the area of real estate investing and know where it fits in a multi-asset portfolio. The other thing I would say is the positive aspect of globalisation is it’s really opened up new markets and new opportunities and I think you know you’ve got opportunities in emerging markets, but I think the new patterns of trade are creating different sort of patterns of city growth even in the developed world. So globalisation is really throwing up new opportunities, and the big real estate companies are doing research across the globe and there’s better information. So you know the down side is, of globalisation is asset value swings, the up side is more opportunity and some real good opportunities for funds to diversify.
And Tom, so those investors looking to invest overseas, how should they be going about this? Are there certain investment vehicles that work well in this arena?
Well what we’ve seen is that with I think the growth and superannuation money is no secret in the international community, so we’re seeing a lot of international funds looking at Australia as a source of future capital. And so it’s been quite hard sitting in Australia as there’s been you know fund after fund doing road shows and one of the challenges for the super funds will be to identify you know who to partner up with and how they’re going to invest and given the trends coming out of the Australian market I think the main flavours going to be in very small clubs or in co-ownership arrangements where they have a very close control of the asset that they’re acquiring, rather than say through listed vehicles, although they may still have a role play in their overall allocations. And so it’s much more direct and so the challenge for them is really to find the right partners in each location and local partners to understand the local markets and who they can co-invest with, so people who are lined with their interests.
And Richard Barkham, looking at which market do you think super funds should be keeping an eye on at the moment?
Well I mean I think in terms of conventional economics you’ve got to say that the US and Asia look like they’ve got the most robust fundamentals given what’s going on in the Euro zone. So I think we see you know continued recovery in the US and Asia, the US looks particularly attractive because it’s a restructured economy, there are new opportunities opening up, so I think you know investors will want to look at that. And I think a lot of investors are doing that, but I think also that often in real estate you make the most money if you run in the direction that’s opposite to everybody else. So I think most people are avoiding the Euro zone right now and on the surface of it they’d be quite right, because the economics is pretty terrible. But I have to say I think probably if you look at the Euro zone there are probably pockets of towns and cities are likely to outperform or seem to do well even in a crisis, and indeed the very turbulence of the economic problems in the Euro zone will probably create real estate opportunities and I note that a lot of the bankrupt governments in the Euro zone are launching big ASIC disposal programs. So there’s opportunity to target real estate assets that have not been on the market before. So I hope that’s – that’s not a very specific answer but that’s how I see it, you know there are opportunities and different levels of risk all around the world.
Well just focussing on the opportunity and risk, Richard Butler from CBRE for our final question; what do you see as the key risks and opportunities in investing overseas?
Okay and it’s a perfect segue from the previous answer because I think it’s the very nature of the markets being up and down around the world in different ways that provides an opportunity and I’ll expand on that in a second, but I think the risks are obviously currency. Currency can be risk or reward, so you’ve got to be very careful what you do, you don’t want to be going in buying something and then having the dollar move out of the money and then – and then you can’t sell. So you’ve got have a big enough fund so that you can juggle your timing to sell, so you need to look at hedging transparency is both – is both a risk and a good point in some places. Usually if you follow Commonwealth type law around the world you will be in danger of having title when you settle, in some countries that’s not a given. In the PLA might own us in China you never know, you know, so title’s a big issue. Can you sue someone for the rent or for performance; you know is there a system that – that works? So that’s a risk. I wanted to quote the Singapore argument, “Fortunes have been made by picking Singapore, because the Government turns up supply when rents are going to high and then the rents go through the floor. So you need to go – you need to go into Singapore when the rents are through the floor and then you can make – you can almost double your money on assets, so you’ve got to get your timing right and that’s true for everywhere. As I said varying legal systems, I mean I think opportunities as I said before, that I hinted on, I think buying out of sync or being a global investor where you say well I’m just definitely not going into Spain for example because of the sovereign risk, but I’m going into Y because it’s in good shape, you know, you can chose, you can buy you know when things are down, when they’re stagnant, when in the knowledge they’re going to go up. So that’s the beauty of global, being able to pick the eyes out of it, taking advantage of a down market to buy well and spreading risk. And I think I like to quote DECCA who’s one of our biggest clients and they – for example the reason they want to buy in Australia is because there is growth, your average lease is you know 3% to 4% bumps per annum in Germany they don’t get any of that, so they’re happy to even pay 3% hedging because even at 1% growth that’s better than they’re normally going to get back home, so that’s the reason for the attractiveness of Australia, the lease structures with upwards growth.
Well some interesting insights from all of you gentlemen today, on the property sector globally. Thank you so much for joining us today on BRR Media.
Well that was Richard Barkham, who’s Group Research Director of Grosvenor Group, and also non-executive director of Grosvenor Fund Management. Tom Cantwell, a Partner in DLA Piper’s Property Group and Richard Butler, Senior Managing Director of International Investments at CBRE. Now listeners if you have any questions for any of the panellists you can send them through either using the panel on your screen or otherwise via email to firstname.lastname@example.org.