In today’s record low yield environment investors must focus on the asset rather than the market or the country, Alexander Fischbaum, Managing Director, AF Advisory, said in his keynote address to Real Asset Media’s European Outlook Briefing in New York last week.
‘We have private equity firms and fund managers who ask for our services because they don’t know the context, they don’t have feet on the ground, their offices under staffed and so on and we put all this together for them,’ Fischbaum said. ‘In a very competitive market being able to source, structure and pre-analyze deals creates a lot of value’.
The country allocation is decided by the investor, but once that decision has been made ‘we start identifying the deals because at 3-4% yields it is not about the country or the market anymore, but it is all about the asset. Different investors have very different appetites and there will always be a niche for under-managed, difficult assets that have potential.’
AF Advisory, which advises on all real estate sectors, is present in four European markets, he explained: the UK, Germany, the Netherlands and Ireland. The Dutch and the Irish markets, have made dramatic recoveries from the crisis which hit them hard but they are quite small. Ireland in practice means Dublin, Fischbaum said.
The UK market offers some distinct advantages. Prime office yields in London vary between 3.75% and 4.50 per cent.
‘If we look at the UK it is a very substantial deep market and it offers some rental growth but comparatively attractive yields and that’s the story I am trying to tell today,’ he said. ‘You come from the overall global view and then you look at the yields in that country then you look at the cities that you’re comfortable investing in and then you look at the parts of the city that you think are going to go somewhere and finally you look at the asset, that’s exactly the roads we travel down.’
Germany is an attractive but competitive market in which it can be difficult to make money.
‘If you look at record low yields in prime offices you understand why capital flows go out of Germany. The German funds are suffering because in their home market of Frankfurt everything is around 3% so they have to go overseas to make money,’ Fischbaum said. ‘You can also borrow at ridiculous rates because the banks are under so much pressure, they have to live with the European Central Bank pushing rates into what I would argue is unsustainable territory’.
Contact the editor here.