If September was incredible, then what is there to say about October? Looking back, at my last blog, it appears almost as though it could have been written six months ago and in a different world.
At least I’m not alone in being confused; most of the commercial property news stories this month have also reflected a crazy world and one that may well be about to get even crazier.
A report from Standard & Poors about the performance of global REITs set the tone. This showed REITs as outperforming direct property so far this year, undoubtedly good news. However the slightly euphoric tone seemed bizarre given that the performance being cheered was a year to date loss of 14.27% as at the end of September. This was probably a good time to stop measuring for the moment, at least in the UK!
Everyone had hoped that July 15th would prove the low point for the property securities market but October brought new falls - another 20% at their lowest before recently gaining back most of the losses. It takes a brave man to call the bottom of the market at the best of times and now may not be a time to be brave, unless you are prepared to take the long view.
The degree of uncertainty about the near future was brought home to me recently during a question setting session for the next Reita Expert Panel survey. Predicting future returns is always good for a question but this time the debate focused on the range of returns that we should set. The pessimists wanted lots of negative numbers; the optimists were pushing for +20% as a reasonable target. So rather than debating I thought I should try and see what people are actually doing.
On the positive side the property funds industry is apparently actively recruiting. Less positively they appear to have been building up property teams in the expectation of lots of opportunities to buy properties cheaply. Funny that I haven’t heard from any headhunters recently, but I suppose it beats stories about all the vulture funds being set up. On that side, my cynicism maybe misplaced. I’m usually pretty sceptical about these funds until they start actually doing deals, but recent comments from Mike Slade of Helical Bar struck home.
If you haven’t heard of Mike then he’s well worth finding out about as he’s very smart, very rich and very quotable. In an interview with Estates Gazette he was reported as saying “We're beginning to see now some serious distress, and that comes from the banks. In the next six months, I’m afraid it’s going to be pretty ghastly.”
Apparently some of the UK’s biggest banks were looking to offload loans from their balance sheets but that currently the investors were waiting to buy the debt at wider discounts than the 40% being offered by the banks. Is this good news or bad news – I don’t know so I thought I’d turn to the experts and look at recent analysts’ notes.
This gem summed up the month for me - from October 24th “Good morning! Those two words may be the most positive you will hear today.” Ironically though the same note went on to explain why the future might actually be about to become a bit brighter and ended with a stirring call ‘..this is the time the ‘strongest' REITs should use their strength and offer their expertise to (forced) sellers in property and government. The REITs are in our opinion best positioned to play a significant role in the reshaping of the (listed) property industry.’
Finally apologies and advance warning that that there won’t be any stories about pubs this month or next. I’m now on my annual detox so no beer till Christmas – unless the markets drive me to drink that is!
Dave Butler is head of external affairs at Reita
The views expressed in this blog are the author's own.
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