In the midst of the “Fourth Industrial Revolution” and in the wake of Brexit and the inauguration of US President Donald Trump, there is a near-deafening cacophony of noise and a seismic shift in investor attitudes, says Bruce McGlogan, Head of Product – Private Equity & Real Estate (Africa/Europe), Maitland.
High on the Davos 2017 agenda was the world’s deteriorating environment and its threat to the global economy; indeed the World Economic Forum views climate control as one of its major challenges.
Smart buildings where space is more cost-effective and limits the impact on the environment are becoming the norm with the emphasis on devices to control lighting, temperature and sanitation.
In the real estate industry, the manifestation of changing investor attitudes is seen in a socio-demographic shift from investment in office, retail and industrial to investment in healthcare, leisure, urban residential development, infrastructure programmes and sustainable development.
If you consider that there is some $50 trillion of investment in real estate globally and that 40% of the world’s energy is consumed by global investment real estate which produces 30% of its carbon emissions, it is imperative that investment managers take heed. As a major real-estate stakeholder, investment managers need to accept their fiduciary responsibility to actively manage the environmental, social and governance (ESG) risks associated with the ownership of real estate.
With such major geopolitical uncertainty, there are no ‘slam dunk’ investments but the safe haven of property can provide investors with the right returns aligned to their risk profile and leave a smaller environmental footprint for future generations – especially when linked to sustainable practices and through vehicles such as Reserved Alternative Investment Funds (RAIFs) and Real Estate Investment Trusts (REITs).
Speed to market is a key requirement and the introduction of the RAIF in Luxembourg in 2016 has provided a key format for Private Equity and Real Estate investment. RAIFs are not subject to direct supervision by the CSSF and can be launched without any prior or post approval of the regulator. The RAIF regime eliminates the double layer of regulation and embraces the concept of the indirect regulation of the product through an Alternative Investment Fund Manager.
Generally, REITs, with their low costs of access, high liquidity and access to a mix of high-quality real estate, are again in vogue.
Interestingly, following the UK’s vote to leave the EU, Germany has replaced the UK as the leading ‘go-to’ jurisdiction for real estate investment, with cities such as Berlin, Frankfurt and Hamburg all vying for top spot and representing a move towards smaller niche cities with factors such as infrastructure, quality of life and sustainability all key for investors and future returns.
In a continuing low interest and low inflationary environment, investors cannot tolerate being in cash for any period of time. Real estate provides relatively safe and long-term yields and indeed, when combined with ESG initiatives, can produce excellent returns whilst being cognisant of the environment.
The information and opinions herein are for information purposes only.
They are not intended to constitute legal, financial or other professional advice, and should not be relied upon as such or treated as a substitute for specific advice relevant to particular circumstances. Maitland as a group or any of its member firms or affiliated entities accepts no responsibility for any errors, omissions or misleading statements in this publication, or for any loss which might arise from reliance on the material. No mention of any organisation, company or individual, whether on these pages or not, shall imply any approval or warranty as to the standing and capability of any such organisations, companies or individuals on the part of Maitland. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.
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