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Gulf Finance House Real Estate Asset Management Team announces results of UK commercial property study
GFH's has always maintained a keen interest in UK commercial real estate.
* Bahrain: Saturday, May 31 - 2008 at 11:15
* PRESS RELEASE
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Indeed GFH were a pioneer of Shar'ia compliant UK commercial real estate when we launched the Gulf Atlantic Real Estate Fund that was successfully raised, invested and exited with excellent profits for investors.
The GFH Real Estate Asset Management Team have recently undertaken an exhaustive analysis of the UK commercial property market.
NOTE: GFH IS A WELL RESPECTED REAL ESTATE ASSET MANAGEMENT TEAM.
Until recently, we hadn't considered UK property as an attractive investment area as the prices being paid simply did not make sense to us.
Between 2005- 2007, a lot of European investors piled into UK property seeking high returns. Often, they used borrowed money to leverage their investments, being driven by avarice and a belief that there were only profits to be made.
In hindsight, the bubble that developed was due to property fund managers being forced to buy buildings beyond their realistic fair value due to the pressure to deploy the cash that investors were throwing at them.
We know that many fund managers were uncomfortable with the prices they were paying but had no other option but to spend as investors were so desperate to get their money into the market.
As the first cracks appeared last summer, investors rushed for the door and fund managers found that they simply couldn't find buyers for their properties quickly enough to release cash to pay out investors.
As a result, funds were forced to suspend redemptions to give them time to find buyers.
As a result, UK property fund managers have been facing intense pressure from regulators, trustees and investors to sell to meet redemptions.
This resulted in a 'fire sale' of institutional quality property in late 2007 and early 2008.
The resultant market reversal has been magnified by the 'credit crunch' which has also drained liquidity from the market.
As values have slipped, many levered property owners are now in technical breach of their lending covenants and their banks have started to apply pressure on them to sell.
Thus, the UK commercial property market has been caught in a perfect storm. Retail and institutional investors have been trying to liquidate.
Regulators and trustees have been ordering fund managers to sell into a market that is devoid of buyers. Potential purchasers have been starved of liquidity by the credit crunch.
The result of this are prices of many good quality commercial properties falling by 25% or more during the last 12 months.
Some good properties now have cash yields of 8% or more.
In many cases, these bargains aren't publically offered as their owners are trying not to show just how desperate they are to sell.
However, with GFH's outstanding network of contacts in UK property, we have seen some offers with distinct upside potential..
It is our belief that this correction in UK commercial property provides a buying opportunity for long term investors.
Historically, UK commercial property has typically provided good risk adjusted returns.
This is the very reason that it provides the cornerstone of so many pension and institutional portfolios and is an essential investment for investors looking for long term wealth protection and diversification.
Periods of negative returns are very rare in the UK and usually decades apart.
Because of the enduring popularity of UK commercial property, international buyers have used these brief periods of weakness to snap up bargains as values have recovered into positive territory.
History teaches us two lessons here - bear markets are a rare phenomenon in UK commercial property and the market doesn't stay cheap for long as opportunistic investors identify value.
Some commentators are saying that the UK property market will continue falling through the next 6 months before stabilizing and then recovering sometime in 2009.
They would argue that there is no hurry to buy now as the bottom of the market will not be until later 2008 at the earliest.
We think that they are half right. We would agree that the broad property market will continue to drift downwards and that recovery is probably at least 6 months away.
We therefore don't believe that investors should buy today hoping to sell at a profit in a few months.
However, history tells us that the time for the best bargains is normally at or near the bottom of the value cycle.
There are many deals to be done at below market prices because of the increasing number of sellers in the market.
They are willing to deal at prices below fair value as they are in need of the cash. And, as we discussed, there are significantly fewer buyers than 12 to 18 months ago.
This creates exactly the opposite of the situation last year when people were willing to pay over the market price for properties.
By the time broad markets start to stabilize later this year, a lot of fear will have left the market and sellers will be less willing to consider bargain bids.
In any market, the best bargains are snapped up by investors who are prepared to buy early and then exit as other investors start to over pay. Whilst we see many opportunities in UK commercial property, investors must choose very carefully.
NOTE: INVESTORS MUST REALLY ANALYZE PRIOR INVESTING.
There is an old saying 'A rising tide lifts all boats'. In some markets an investor can make money by buying almost anything and relying on the rise of the broad market to make money.
Indeed, there have been times in UK commercial property when this has been true but it is not true today.
There are high yields and recovery properties available but some properties still look expensive.
Investors will have to choose carefully to reap the rewards that are undoubtedly available but there is no doubt that there good deals to be done.
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Notes and media contacts
Contact:
Name: Alia Shaikho
Title: Head of PR
Contact: 0097339688722 – 00971 17 538538 ext: 875
Posted by staff reporter
Saturday, May 31 - 2008 at 11:15 UAE local time (GMT+4)
Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of AME Info FZ LLC / Emap Limited.
This Article was updated on Sunday, June 01 - 2008
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