Sakal Real Estate Partners is an end-to-end capital advisory based in Singapore. The Yield caught up with founding partner Joe Kwan to get his take on the current markets, the recovery from the pandemic, and about the new breed of investor in SEA.
SAKAL Real Estate Partners (SREP) was set up by two principals – Steven Ming and Joe Kwan. The founders spent much of their careers dealing at the opposite end of the negotiation table. Steven has been on the sell side for more than 20 years whilst I have been on the buy side for nearly two decades. We saw a great opportunity to combine the skillsets and to bring a different perspective to the market. Whilst our core business remains in real estate capital markets advisory work, SREP are invested in the Proptech space. The firm acquired a property management firm in early 2020 and re-branded the digitalised and revamped entity as ‘Simply Sakal’.
What is your bread and butter?
For us, the key thrust remains the commercial real estate sectors; across office, retail, hospitality and industrial. But due to the reach of our capital network, we are involved in larger residential transactions as well. Our typical transaction size can range from US$20 million to US$500 million and beyond.
Why the interest in proptech?
We believe change and digitisation is inevitable and that includes the real estate space. If we can introduce a way where things can be done quicker, more efficiently, and with the right users’ experience, that we owe it to ourselves to improve this space. This is why we started looking into property management. This is a space that has yet to witness any meaningful change in the past few decades.
What geographies do you operate in?
Singapore remains our home base and we retain a slight home bias as a good portion of our client is located here. But we do have a very extensive regional network of institutional clients i.e. fund managers and family offices which we work closely with – across APAC. In terms of coverage of investment markets, we also work with our clients covering deals in the UK, Japan, Australia and Hong Kong.
How are the markets looking right now?
Compared with the APAC region, real estate pricing growth in Singapore has somewhat trailed other core markets in the few years leading up to the pandemic. The lack of investment opportunities may have a part to play as institutional funds build up exposure in markets which are more approachable. This may change as the pandemic will throw out buying opportunities. Couple that with a risk-adjusted-return profile that make sense, we are already seeing a heightened demand for assets. The level of activity amongst investors is growing by the week as the market cautiously resume business.
In Singapore and pretty much everywhere across the region, retail and hospitality assets have seen the largest drops in both income and investment sentiment. By virtue of that, we are seeing pockets of value propositions within these asset segments. We particularly like defensive non-discretionary retail propositions. What this pandemic has taught us is how life continues to revolve around these sub-urban retail nodes.
Overall, the second half of 2020 early 2021 might well translate into an excellent vintage year at the right entry price. It will not come as a surprise if there are some retail and hospitality transactions making the list.
When do we see the recovery happening in Singapore?
The recovery will be bumpy. The market is always seeking assurance and we do need to collectively conclude an end to the pandemic or presume it at some point. All eyes will also be on the US-China geopolitical risks. It is relevant because it impacts business sentiment and debt availability. All things being equal Singapore is well positioned to emerge quicker especially given its haven status. The level of investment interest and fund inflow, both institutional and private, has grown meaningfully against a backdrop of growing geopolitical uncertainty elsewhere. Smart money, as past crisis has shown, always seek safety. As such, it is difficult to look beyond this market.
What about Hong Kong?
It is far too early for us to call a definite outcome for Hong Kong. It remains a major financial hub and home to one of the largest listed capital market in Asia. They are currently caught in a trade crossfire on top of some on-going domestic issues. Depending on the circumstance leading up to the election in the US, there is certainly room for the story to further develop. That said, we are seeing corrections in some segments of the HK market particularly for fringe assets. Holders of prime core assets will continue to play the long game and pricing adjustment in this space will be limited. The appetite for diversification nonetheless has grown and select HK based capital are progressively seeking placement in Australia and Singapore.
What about the other key market across Asia?
You should be able to get some levels of discount or concessions on assets off the same APAC deal sheet shown to you in March. There will be debt opportunities in Australia and Japan as financing is expected to tighten up. For those with a higher risk appetite and is seeking to enter the industrial or logistic space, the emerging markets of Indonesia and Vietnam will provide such opportunities. Select ASEAN markets are experiencing a steep e-commerce pickup and would provide growth if investments are strategically deployed. Outside APAC, investors- particularly those seeking longer term income stability- are relooking into the UK. Brexit concerns are being priced in and deals are still be done.
What parallels can be drawn from SARS and the GFC recoveries that could help us navigate the current pandemic?
The immediate market reaction is always going to be instinctive – flight to safety. Capital markets could well be partially immobilised for a good 6 to 9 months post crisis. That said, the ‘entitlement’ expectation of fiscal and monetary intervention should shorten correction cycles. Provided there is no further shock to the system, market liquidity should revert to support capital valuations. This typically within 1 to 2 years post crisis. This could result in a much-reduced window of opportunity for acquisition.
Will we be seeing a new breed of investor in the Singapore market?
We have seen a huge influx of private wealth capital in North Asia coming to Singapore even before the pandemic hits. This residency seeking capital will progressively work up the value chain first into residential followed by commercial real estate investment. Generally, this private money is less yield and IRR sensitive hence will represent new competition to existing market participants.
On the institutional front, there has been a marked broadening of investor’s base in Singapore. New market entrants from the US, Middle East and North Asia have set up base and are looking to deploy their APAC strategy from Singapore. With home biasness playing a part in their deployment, this points to an increasingly vibrant market.
How about Singapore outbound investment?
Singapore investors, particularly landlords and real estate developers have been looking to diversify their investments for the past few years. UK, Australia, and Japan are the popular destinations given the promise of longer-term recurring income. This outbound investment flow is ongoing and search has begun to seek out covid discount. Current focus may well be to appropriately price in the cost of social distance.