Development Deals – Limbo, Limited Pipeline or Never Better Yields

The first day of GRI Europe 2020 kicked off with a discussion on “Development Deals –  Limbo, Limited Pipeline or Never Better Yields.” The panel of real estate industry leaders were cautiously optimistic about the opportunities in the post COVID-19 world. 
Here are some highlights from the discussions:

  • Residential including PRS schemes, logistics, data centre were most favored. However, opportunities in office in areas with favorable demographic trends were highlighted. 
  • Hospitality in vacation focused sectors will be ok, but hotels focused on the business traveler will take a long time to come back and are under the most stress. 
  • In terms of lending, liquidity has picked up but banks financing will prove challenging.

Bottom hit? Ready for risk?

The third and final day of our GRI Opportunity eSeries Europe gathered GRI Club members online to understand the European real estate investment and transaction landscape. Most members agreed that they are not seeing distressed assets as of yet and they are focusing their efforts on understanding new trends and demand, as well as going back to investment basics.

Next to retail and hospitality, offices was seen as another asset class where distressed opportunities might hit the market in the next 12 months. However, most investors are still adopting a wait & see attitude as of yet, also due to increasing debt and prices across the more resilient assets.

Special thanks to Anas Halabi (3S Capital), James Piper (TPG), Joseph De Leo (Benson Elliot), Karim Habra (Ivanhoé Cambridge), Laurian Douin (BC Partners), Peter Plaut (WIMMER FAMILY OFFICE LTD) and Tavis Cannell (Goldman Sachs).

The GRI Opportunity eSeries Europe featured GRI Club members as a warm up for our Europe & France GRI in September in Paris where the conversation will continue:

#GRIClub #RealEstate #investment #Europe

The Great Reopening of the Global Hospitality Industry

The hospitality industry and the broader global tourism industry are key components to global economic and social recovery. The Hospitality industry faces many significant challenges both near term and longer term.
The large operators with strong balance sheets and solid liquidity positions will be the survivors and likely consolidators within the industry.

Smaller operators will likely not survive a prolonged period of low occupancy, higher costs and losses. Niche boutique hotels offering health and wellness focused accommodations and experiences will become increasingly in demand, especially among Millennials. In the longer term, the global hospitality community will recover and likely in a renewed and innovative form. Indeed, history has shown that our global community has dealt with far greater pandemics, wars and other challenges then currently being experienced.

GRI Global Committee on Hospitality

During this unprecedented time, I am honored to be selected as a Vice-Chair of the GRI Global Committee on Hospitality (see attached). It is an exceptional group of 30 world leaders with an invested interest in hospitality.

GRI Club is a global club bringing together key players in the real estate and infrastructure sectors. Founded in 1998 in London, it is present in more than 20 strategic countries.

GRI’s mission is to connect leaders from these markets and contribute to the building of privileged relationships and real business opportunities. In this context, more than six thousand businessmen, senior executives, and investors participate annually in the club’s programming in the world.

GRI Club Iberia eSummit

I had the pleasure to moderate a GRIClub e-meeting on the post COVID-19  impact on Spain and Portugal’s real estate market:  Iberia – Mapping COVID-19 Recovery, Growth and Inbound Investment Appetite. The e-meeting had over 80 participants including  C-suite real estate executives and asset managers. My co-chairs included Brian Betel, Activium, Mark Tsocanos, Baupost Group, Lorcain Egan, Starwood Capital, Thomas Kottman, Mespil, Michael Abel, TPG Real Estate, and Marta Cladera de Codina, Nuveen Real Estate

The Economic Back Drop

Over the past 3 months, COVID-19 has triggered the worst economic crisis since the Great Depression. In the developed world, GDP declines in Q1 have not been seen since the Global Financial Crisis of 2008-09. Q2 will likely see declines in GDP in the mid-teens to well over 20%+ in some countries (including the US). Unemployment rates have skyrocketed throughout the developed world with no near-term end in sight. This has significant implications for the global real estate sectors and, more importantly, the hospitality industry which is key to Spain’s economy (representing 15% of GDP).  Spain witnessed a decline in GDP of 5.2% in Q1 and expectations are for a decline of almost 15% in Q2. For the full year, Spain will likely see a decline in GDP of 8%.  Portugal witnessed a decline in GDP of 3.9% in Q1 and expectations are for a decline of just under 12% in Q2. For the full year, Portugal will likely see a decline in GDP of just under 7%.  

Spain and Portugal Real Estate Market Q&A

Some of the questions posed to the participants focused on the following questions:

  • Views on COVID-19 impact, recovery and relative performance of asset classes and geographies
  • What are the key drivers to keep investor confidence in current markets 
  • What are the expectations of the lending landscape in a post COVID-19 environment
  • How has risk appetite changed pre & post COVID-19.
  • Is public-private collaboration possible
  • Is Barcelona, Madrid, and Lisbon now considered part of Core or Core+
  • What are the repercussions from the printing of nearly $10 trillion.
  • With tourism representing 15% of Spain’s GDP, what is the impact on real estate and hospitality.

In general, the participants provided a cautiously optimistic outlook for both Spain and Portugal’s economies, despite the significant uncertainties surrounding the Covid-19 pandemic. The residential PRS sector, industrial sector, and high-end office were singled out as well-positioned to recover quickest. As expected, the hospitality industry and retail industry had the most negative outlooks. But surprisingly, participants believe that personal vacations will recovery quicker as people want to travel. In contrast, business travel will likely remain depressed as people have become accustomed and prefer virtual meetings via Zoom and Microsoft Teams rather than travel.  

The Wimmer Family Office continues to expand our partnerships with real estate developers with good track records and an ability to execute throughout business cycles. Our debt and equity financing facilities have a min size of 150mm to well over 1 bn and we are looking to increase our exposure to Spain and Portugal.  In the past three weeks, we have signed engagements and/or term sheets with real estate developers across the globe for over 3.5bn. Separately, I have a joint venture partnership with the Fortress Credit Group to help companies with liquidity needs, including providing non-recourse capital secured by the company’s litigation claims.