Pick up the papers and it is easy to fall into the doom and gloom camp. If Covid wasn’t bad enough, we are now over a year since the invasion of Ukraine with all the adverse knock on effects as regards cost of living and inflation. This coupled with interest rate increase after interest rate increase, to levels we have not seen for years, would leave many with their heads spinning.
Many negative pundits have in recent months advocated a ‘batten down the hatches’ approach as house price falls loom and the economy teeters on the brink of recession. Basically do nothing but sit on your cash – don’t invest in property, don’t move house etc. etc.
But is doing nothing really an option and allow inflation to just eat away at capital value. Interest rates will come down as some point (admittedly not to the super low levels we have enjoyed for years) and equally so will inflation. I have yet to see a house price crash and we are not in recession.
A lot of savvy property investors and developers are talking the opportunity to buy well in the current market, capitalise on challenges faced by others (e.g. via distress or lack of experience) and looking to future proof some of their investments through added value strategies.
Property is a cyclical sector like no other and, with a longer term view, the depressed prices being seen in some commercial real estate classes do appear to represent very good value over the next cycle.
Admittedly funding such purchases, acknowledging many will have inherited challenges such as inadequate investment / capex, high vacancy rates or impending lease expiries is more challenging. A 2 stage financing strategy may be needed i.e. buy in & maximise income followed by term investment but the value added potential will invariably more than outweigh the initial pricing premium. With dry investments increasingly difficult to fund at historic gearing levels in the current interest rate environment funders are alive to more opportunistic purchases for borrowers with proven track records and a sensible plan.
Over recent months we have advised clients with funding strategies across a number of these type of asset classes ranging from retail shopping centres with 80% vacancy rates, hotels requiring time to achieve stabilised trading to listed commercial buildings requiring capex to drive rental growth.
Please feel free to get in touch if you have an opportunity and wish to discuss funding.
Disclaimer
The information was correct at time of publishing but may now be out of date.
