Priyaranjan Kumar is Managing Director, and the Head of Singapore at Alvarium Investments. Alvarium is an independent, global boutique offering tailored investment solutions for families, foundations and institutions. PK talks to The Yield about his company and the opportunities presented by investing in real estate post Covid-19.
Alvarium’s expansion into Asia is relatively new. The current footprint consists of a highly regarded Investment Advisory business in Hong Kong, a fast-growing asset management business in New Zealand and newly established offices in Australia and Singapore. Given the establishment of the firm in UK in 2009, post the Global Financial Crisis, the bulk of assets under advice is in UK and Europe with a fast-growing business in the Americas in the past 4-5 years.
In periods of crises, such as we are currently experiencing, our long-term investment horizon means that we can take advantage of price dislocations and focus our investments on long term powerful trends. We can look through the devastation economically and find the best opportunities for long term return. As we look at real estate for example, certain sectors such as hospitality and retail have been more adversely impacted than residential or private lending. History show that often the best returns in private markets are in vintages post an economic decline and period of market dislocation. We have had 10 years of successful growth with our real estate co-investment; over 100 transactions with 20+ exits with IRRs in excess of 25%. We know from experience that buying well in times of crisis can make all the difference in terms of return.
As we look across real estate trends of the future, there may be permanent changes, both positive and negative, that investors need to consider. Longer-term, commercial office space needs may be affected, given the increased acceptance of flexible working conditions and desire to reduce fixed costs. Public officials may amend building codes to reduce allowable human usage per square meter. In certain countries, there remains a significant imbalance between long term demand and supply. Government-backed programmes and well-funded housing and student accommodation opportunities are still likely to be long-term attractive areas of investment.
Domestic onshoring of supply chains could change demand and supply dynamics. Business travel and thus hospitality may be affected by the new-found acceptance of video conferencing. Consumers may accelerate the trend of online shopping, increasing demand for all things related to e-commerce fulfillment. New hybrid university models may emerge combining in-situ and remote learning. Overnight the crisis has increased the importance of digitalisation and the resilience and demand for digital infrastructure.
As we look across the globe and within Asia, we highlight some of the areas of potential opportunity:
• Senior Debt: Potential to acquire senior debt from banks or corporates, with first loss provisions and 60-70% LTV, where the underlying property is fine, but the lender is needs balance sheet relief.
• Pockets of Strength: Investments where the crisis has actually improved demand and where strong fundamentals may now be more attractively priced, such as in:
o Digital infrastructure where ‘shelter in place’ rules have created an insatiable demand for connectivity, and with 5G, this trend is likely to accelerate
o Industrial, particularly last mile distribution, with good long-term fundamentals as online shopping demand continues to rise, or where the crisis has increased the need for resiliency in the supply chain of critical goods
o Life science lab/medical office space, an area likely to grow in importance and demand, directly as a result of the crisis
o Mixed-use real estate; residential units affording better work and living space combined
• Strategic Residential Planning Plays: Buying land, seeking planning permissions (development margin), and then on-selling development to Governmental authorities to deliver housing. This has worked well in the past, and our experience shows that only reliable players with access to finance and expertise will be favoured.
• Opportunistic Land Purchases: Long-dated leases to hospital, or life science tenants are likely to continue to offer an attractive yield relative to other assets perceived as low risk.
• Capital light: Capital light planning on prime development sites. Planning opportunities with local partners who have secured call options on pre-exiting largely obsolete buildings; these opportunities do not have any reliance on cashflows over the near term.
• Partially Completed Developments: If the lockdown and resulting recession are steep and or prolonged enough, previously attractive developments in growth segments with good tenant profiles could become attractive.
For Alvarium, we believe in backing great teams, with great projects at great prices. More to the point, you need to have ‘feet on the ground’ locally to identify and underwrite risk quickly. Our global footprint with local teams gives us that advantage.
That is what we do: investing side by side with our families.