IPE Real Assets rarely draws analogies to football (or soccer, depending on where you’re reading this), but as the 20th IPE Real Estate Global Conference & Awards concluded at Madrid’s new Bernabeu Stadium, it certainly felt like a “game with two halves.”
When the final award winner was announced, the evening's host, Professor Nils Kok from Maastricht University's Department of Real Estate Finance, congratulated the winner: Ivanhoé Cambridge, the real estate division of Canada's CDPQ, which was crowned Global Real Estate Investor of the Year.
Defying the stereotype of a professor, the cook was decked out in a Real Madrid shirt and two hours earlier he had run down the steps of the Bernabeu, blew the referee's whistle, performed a few football tricks and kicked the ball into the crowd before taking to the stage.
It was a great start to the 20th IPE Real Estate Awards and also the first corporate event to be held on Real Madrid's fully retractable pitch (the turf is brought underground in sections) since its recent redevelopment. Next week the stadium will host its first ever major whole-stadium (non-football) event, with Taylor Swift set to take to the stage. For the time being, the star of the show was the real estate industry.
Earlier in the day, in more traditional conference attire, Koch chaired the IPE Real Estate Global Conference, where he spoke about some of the more serious issues facing the real estate industry, from macroeconomics and interest rates to climate change. Geopolitical expert Dr Sajan Gohel gave a particularly unsettling overview of the dangers facing the world.
The meeting was welcomed by Madrid's Mayor, José Luis Martínez-Almeida (who, incidentally, is an Atlético Madrid fan), who clearly recognised the opportunity with nearly 400 real estate investors, investment managers and advisors in the city, announced a commitment to provide new housing through public-private partnerships and acknowledged the need to address planning restrictions and create a more attractive regulatory environment for investors.
The importance of regulatory stability has been one of the key issues for institutional investors in recent months, at a time when investors are looking to move away from their traditional emphasis on office and retail and make residential and the evolving “living sector” a bigger share of their portfolios.
The topic came up during a roundtable discussion at the previous day's Investor Forum, when a small group of investors were asked what “keeps them up at night”. On the main day of the conference, Laurent Ternissien, deputy CEO of BNP Paribas Real Estate Investment Management, explained that it's not a matter of regulations per se, but sudden changes to them. Indeed, less onerous regulations would allow for more flexibility, while a tougher regulatory regime could lead to lower levels of reputational risk.
The Netherlands is a good example, where a court recently ruled that some past rent increases were illegal, potentially impacting the portfolios of large institutional investors. And the UK could be next: on the day of the conference, the UK government announced a general election would be held in July, paving the way for a possible Labour government to be formed in the summer.
Gijs Plantinga, business development director at Bouwinvest, and Rafael Torres Villalba, senior portfolio manager at APG, spoke about how both Dutch investors are seeking to invest in affordable housing in their home market.
Robert-Jan Voortse, head of European real estate at APG, recently told IPE Real Assets how ABP, APG's largest pension fund client, has asked him to invest an additional €5 billion in affordable housing in the Netherlands, and he expects APG and real estate investors to become more active in the second half of the year.
Conversations at the Madrid conference included some belief that performance could improve in the second half of the year, but much of that confidence is based on the assumption that interest rates will start to fall in the coming months.
Asked for his expectations, opening keynote speaker Guillermo Tolosa, special deputy director of the International Monetary Fund, suggested interest rates would be cut by 25 basis points every quarter starting in June.
Tolosa cited another reason for optimism: Despite the blow of the interest rate surge, European economies have shown remarkable resilience. Apart from Credit Suisse, there was probably no systemic or substantial “collapse” in the face of such aggressive monetary policy.
However, policymakers will walk a “narrow line” between “squashing signs of recovery” and “stoking inflation.” Another caveat is that while interest rates are likely to fall, they could also plateau at a new neutral rate of 2.5% by mid-2025. This rate is higher than in the more recent past. So while investors may experience lower interest rates in the short term, the asset class may have to get used to higher interest rates over the long term than they've become accustomed to.
But Julie Donegan, director of real estate at the California State Teachers Retirement System (CalSTRS), emphasized in an onstage interview that, like housing regulations, the real challenge for real estate investors is interest rate volatility.
“I think the real challenge is underwriting stable rates,” she says. “It's volatility that kills the deal, because if rates change after you start underwriting the deal and before it goes through the committee, [it] The deal may disappear. [Even] Whether it's 5%, 6% or 7%, as long as we expect that to continue for a while, we can find a way to do the underwriting.”
“I'm sure there are many in this room who remember when interest rates were higher,” Donegan added. “It was an extraordinary period when interest rates were so low.”
The conference is scheduled for next year in Copenhagen, and by then investors may be returning in earnest, encouraged by lower interest rates and greater stability, but only time will tell.