[ad_1]
As 2022 draws to a close, following our Real Estate of Mind roundup (see here) earlier this year that summarized trends in this space, we are excited to connect with clients and friends alike in Kuwait Bahrain. I traveled again. He sees what 2023 will look like for his GCC investors investing in international markets in the United Arab Emirates and Saudi Arabia.
This article will focus primarily on the UK and this time we have a US section as we are thrilled to have our US partners traveling with us.
We thank our clients and friends for their thoughts and valuable insights. We look forward to your further feedback.
So here we are with our second Real Estate of Mind roundup…
Insight 1: Assets continue to be identified
The previous roundup highlighted its interest in assets such as logistics, industry, student residences and commercial offices. While interest in these sectors remains high, we see a new hot spot emerging for GCC investors: the ‘construction leasing’ sector. These properties are purpose-built rental communities designed from the ground up for the rental sector, providing tenant ownership guarantees and professional management services.
The construction rental sector (known in the US as “multifamily housing”) is a well-established investment sector for GCC investors investing in the US. Conversely, property ownership has historically been important in Britain. As the cliche goes, an Englishman’s home is his castle. But as buying real estate becomes more expensive and interest rates rise, the concept of ownership becomes out of reach for most people, and this attitude needs to change. For many people, rental housing is the only option. In terms of flexibility, there is also a shift in the British mindset. He doesn’t want to be tied to a particular job, place, or a particular lifestyle. This combination of factors has paved the way for growth in the substantial rental market and construction rental sector.
The construction leasing sector is not a new asset class for the UK market, but it is certainly an asset class of increasing interest to GCC’s clients and friends.
Insight 2: Cash is King
After actual and proposed tax cuts were introduced in early September, the British pound fell to its lowest level in more than 40 years against the US dollar. While this has had some impact on international investor confidence, there is no doubt that assets are much cheaper when bought in US dollars (or currencies pegged to US dollars). Therefore, there is an opportunity for those with cash that can benefit from the dollar-pound exchange rate.
The exchange rate has made UK property significantly cheaper and those with cash are looking for opportunistic acquisitions without obtaining bank loans (mainly because the cost of such financing is currently very high and Because currently all interest rates for 5 years are stuck at 6-7% (periodic). These investors will consider refinancing when the UK financial markets stabilize.
Insight 3: Adjusted prices are correct
Over the past few months, the general consensus has been that UK property prices cannot continue to rise at their current levels. Inflation, rising funding costs, and the prospect of a recession are believed to drive property prices down. I’ve heard estimates that such price reductions are likely to be 10-20%. This has not yet been reflected in the actual deal, but there is currently a 5-10% discount in the market.
Insight 4: Sustainability
Logistics remains a hot sector, but supply and demand issues mean that the required GCC investor yields cannot be achieved. Last time, we discussed the development of such logistics assets. This time, we have heard about retrofitting existing logistics assets to first comply with new UK regulations and then add capital value at exit for such assets. This is especially important if the capital investment required to update the associated asset is minimal and thus has no impact on overall yield.
GCC investors are aware of and focused on the impending UK regulations and the need to comply with them in the very near future. This is very consistent with the commonly cited data.80% of the buildings expected to emerge in 2050 are already constructed today.“.
Insight 5: Debt Funds
As we clarified last time, setting up a debt fund that provides senior (mainly UK) and mezzanine (mainly US) debt to real estate borrowers is seen as a real alternative to investing directly in real estate. continue. The importance of obtaining legal and tax advice to navigate the legal, regulatory and tax framework cannot be overemphasized here.
Insight 6: United States
Finally, some observations by US colleagues (in terms of numbers and actual transaction volumes) that point out that the majority of GCC investments continue to go into the US real estate market.
Inflation has spurred action by the Federal Reserve to raise interest rates dramatically in 2022. The magnitude and speed of the rise created price turmoil in the property market and increased borrowing costs. As a result, some investors are considering alternative strategies in the short to medium term.
Trading volumes have slowed significantly as a result of both price uncertainty and changes in capital markets. Buyer’s underwriting does not support previous valuations based on fixed income and cap rate due to higher mortgage liability. Certain properties and transactions are now being retraded based on price, especially if the due diligence period has not expired, resulting in lower prices.
Additionally, rising interest rates are putting pressure on property owners whose debts are nearing maturity. These owners are often looking to refinance on terms significantly worse than their current debt facilities. For some property owners, rising interest rates are having a negative impact on covenants and unhedged variable rate loan interest payments. These properties are at risk of being over-leveraged and submerged.
Another chilling effect on trading volumes is tighter underwriting standards for lenders, with fewer lenders in the market than at the beginning of the year. This is a double blow for the property buyer or owner. Not only is the funding available more expensive, it’s also harder to find.
Depending on how interest rates affect US market liquidity, there may be a buying opportunity for well-positioned investors.
Committee on Foreign Investment in the United States (CFIUSMore) has broad powers to review transactions involving non-U.S. investors in assets, including U.S. businesses and real estate. Specifically, in February 2020, CFIUS implemented the final rule of the Foreign Investment Risk Screening Modernization Act of 2018 (Pharma), expressly permitting consideration of controlling and non-controlling foreign investments in real estate. Prior to the adoption of FIRRMA, CFIUS could only consider the acquisition of real estate if it was part of a transaction that could result in foreign investor control of a U.S. company. CFIUS’ jurisdiction continues to be expanded and clarified through executive orders issued by President Joe Biden on September 15, 2022. In short, CFIUS will exercise substantial powers to define and address national security risks as it deems necessary or appropriate. You should consult a CFIUS attorney to understand the current rules and regulations that apply to your investment in the United States.
At the end:
Our experience is that during difficult times, the potential for disagreements between parties increases, be it between borrowers and lenders, or between owners and asset managers. When a business is in trouble, every cent counts, and stakeholders look at all means to save money and increase revenue. The deal that was negotiated in a good time and ended in a bottom draw is now seeing the light of day. Many legal precedents have emerged from the financial crisis, and we generally expect an increase in litigation and disputes as we go through the current economic cycle.
Finally, the recent appointment of Rushi Sunak as Prime Minister of the United Kingdom has brought attention to the financial plan due on October 31st. Sunak’s first and arguably most important job is to reassure the market that the UK has a credible economic plan.
[ad_2]
Source link
