REFIRE
Charles Kingston - REFIRE
One thing looks sure. The rise of the Greens, and the accompanying pressure on their political opponents to match their voter-friendly social outlook, will require more and more political lobbying from the array of real estate interests to ensure a fair hearing and the overdue reform of the constipated planning and regulatory structures that are in danger of strangling future growth. Not an easy path ahead.
With all the macro-economic turmoil about to engulf the world and send it plunging into recession, it’s legitimate to ask, have we reached peak real estate, and is this the moment when the clever money starts sidling towards the exits?
Certainly here in Germany there’s enough gloomy news percolating through on a daily basis to persuade armchair observers that the 11-year long boom is over. Job layoffs at some of the biggest bluechip employers, tariff wars threatening German exports, right-wing unrest scaring off investors, the return of socialism – if not outright communism – to the country’s residential housing markets – the list is growing longer. But how much of this truly portends the end of a glorious run of success in Europe’s largest economy?
We think the doom-mongers are painting too baleful a picture. The British press, led by the Brexiteering Daily Telegraph and Daily Mail, are quick to leap on any sign of German weakness to deliver their readers a lecture on how Europe - east of Dover - is itself teetering on the precipice of economic collapse. Our day of liberation – that’s the 31st of October – can’t come soon enough, they harrumph, and then those sunlit uplands will dazzle us all with their brightness, once rid of the shackles of those European dirigistes. Roll on the day.
Back here on earth, it’s true that at the more fragile end of the German labour market, that for temporary workers and those working for big beleaguered companies like Volkswagen and Bayer, the immediate future is indeed not so rosy. On the other hand, large swathes of German industry just can’t get their hands on enough staff, while the building and construction industry at this stage is suffering from noticeable skills bottlenecks. German unemployment is still at its lowest level in decades. Order books are full.
The onset of the financial crisis in 2008 tested Germany’s flexible short-term working model to avoid compulsive layoffs, and it was widely deemed a success. A return to the government’s all-handson-deck approach to subsidizing workers hit by the crisis is improbable this time around, as the nature of the challenge has shifted rapidly in Germany from job-saving to re-training workers for the digital age. A challenge which Germany has been slow to react to, but the necessity of which is now being belatedly recognized.
What opportunities are there still in real estate, after such a long, sustained run of rising asset prices, low or negative interest rates, and the rapid professionalization of the German real estate market as a partner shielding global capital from the ravages of depreciation? Plenty, it would appear.
Residential property prices continue to rise across Germany, in all major and secondary conurbations. Despite rents having been been capped in Berlin, with the trend spreading across the country from mayor to mayor, the demand for housing remains unchecked. This will attract capital, still seeking adequate alternatives in other asset classes. And despite low interest rates, this will continue to push up the price of residential property.
One of the biggest new (or at least, newly-recognised) sources of capital seeking yield is the sector known as Family Office, a vast pool of financial resources very open to innovative ways of earning yield and saving as much as it can from the taxman’s global clutches. With less share-investing options available as world stock markets shrink, public bonds now frequently demanding payment for the right to own them, and shrewd investors getting fed up with paying 20% to a hedge fund on profits but with no compensation for losses, it’s no wonder that family offices are turning to private equity and real estate. They are now favouring any assets less exposed to politicians and central banks fouling things up by overnight decrees pandering to their capricious constituents.
Recent data from the Family Office Exchange in Chicago, a global community of wealthy families and their advisors, shows how the smartest family office groups are increasingly investing directly in real estate and other assets, rather than just via private equity funds, to take advantage of numerous opportunistic situations as they arise. These include aggressive entry into new lucrative areas, such as data centres, student housing or hotels and hospitality, without waiting for the big institutionals to create suitable vehicles for their blue-blooded plenitude.
None of this is likely to lead to lead to a narrowing of the global inequality gap, of course, with most investors constrained by borrowing restrictions and lack of access to the most lucrative opportunities.
But with more than $6 trillion in assets, the number of single-family offices has grown ten-fold since 2008, to more than 10,000, according to Forbes. Europe alone is thought to have more than 4,000 firms tailoring their offerings to the needs of every conceivable wish of these increasingly focused family groups.
The number of senior bankers, wealth managers, tax advisers, discreet conference organisers and myriad other experts catering to the financial well-being of these ultra-wealthies can only be guessed at, but it’s clearly enormous. Many family offices have become corporations in themselves, frequently providing their own expertise to other newer entrants into the club of lucky lottery winners, while trying to downplay the professional aspirations of the managerial classes anxious to get a slice of the wealth advisory pie. In other words, it’s a really big, and growing, business.
Many of these names are now showing up on the roster of new owners of sizeable German properties, across all asset categories. Much more so than even two years ago. If anybody’s in it for the long haul, these people are. And like owning a good Patek Philippe watch, they’re investing for the next generation.
