Long Income Property – the next big thing?

The London-based Alpha Real Capital LLP, which specializes in long income real assets, said this week that it is seeing an increase in demand from institutional and other real money investors in European Long Income Property. It says this is being fuelled by investors increasingly looking for alternative sources of long-dated secure income to meet their liabilities, and a growing supply of high-quality Long Income Property assets.

The company invests across specialist platforms, such as social and energy infrastructure, asset-backed lending. In Germany, headed up by ex-Rockspring manager Stephen Brook, it focuses on long-let real estate assets in the commercial, logistics, infrastructure and hotel sectors, with a further specialization in data centres and sites for data centre development.

According to the company, investors are building on the traditional Liability Driven Investing approach of a two-way split between liability hedging and return-seeking assets, towards a more holistic view, including a third class of assets which are specifically focused on generating secure, long lasting income. Alpha said the increase in popularity of Long Income Property is due to the fit within investors’ secure income portfolio, complementing shorter dated liquid credit, with longer dated illiquid exposures.

In other words, in the current low-yielding and uncertain macro-economic environment, European Long Income Property, which includes ground rents, income strips and other long lease property, has the ability to generate secure, inflation-linked contractual income-based returns.

The assets are expected, on the one hand, to out outperform yields on government and corporate bonds, and on the other, to be more defensive through economic cycles than traditional real estate, whilst also acting as a good diversifier.

Alpha claims that acquirers and asset owners of European real estate are increasingly accepting Long Income Property as an efficient way to release capital, benefitting from a permanent covenant-lite source of finance that reduces refinancing risk, and can lower their weighted average cost of capital. 

Alpha, with more than 100 staff and over €3bn of assets under management, works together with both investor and asset owners, and has already deployed more than €1.6bn in commercial ground rents to date. In April 2019, funds managed by Alpha Real Capital, supported the nearly £1bn investment of a portfolio of central London hotels by Queensgate Investments through the creation of new commercial ground rents over three of the hotels.

Hugo James, Head of Long Income at Alpha, said: “We believe the growing acceptance of Long Income Property as an efficient source of capital and an attractive funding source for owners of operating assets, is creating an exciting opportunity for institutional investors providing both diversification and income security.”