Equity and debt will be scarce so financing opportunities will be limited and the tenuous G-7 economic recovery will weaken fundamentals, just as a record amount of real estate debt expires in the US, UK, France, Germany and Japan, it says.
As debt expires two distinct classes of properties are likely to emerge: those well leased properties in the strongest locations and the largest markets which will still have access to capital and those for which liquidity will be hard to find, the Investment Strategy Annual 2012 from Jones Lang LaSalle explains.
It warns that real estate investors should avoid falling into the category of real estate owners who get ‘squeezed’ by debt and equity shortages that are likely to prevail. They should also take advantage of the opportunities that shake loose as de-leveraging accelerates in 2012. The flow of these opportunities is likely to build in those economies where growth rates are most impaired by the current and future macro environment, it adds.
LaSalle is also warning investors to avoid over heated emerging real estate markets, where new construction is poorly disciplined, or where capital is flowing too freely.
Key issues for 2012 include the performance of emerging markets in Asia and Latin America and the ongoing eurozone crisis.
‘There are three principal investment themes for 2012; filling capital gaps, growth strategies and core investing and each of these needs to be tailored to the investment opportunities in each country. They also need to be aligned with the overall objectives of each investor’s real estate allocation, alongside stocks, bonds and alternatives,’ said Jacques Gordon, global strategist for LaSalle Investment Management.
‘Our long term view is that real estate is now a global asset class, as are stocks, bonds and other forms of private equity. Seeking huge risk premiums in cross-border markets leads to the type of problems that were made painfully evident during the global financial crisis,’ he explained.
‘Compared to last year, we have up-weighted our tilt to both core and value add investing in North America relative to Europe. Europe will be a trickier market to navigate in 2012 due to concerns about the future of the euro and the likelihood of a European recession,’ he added.
While Robin Goodchild, international director, LaSalle Investment Management, said that recent volatility in the markets has revived an intense focus on, and interest in, risk management.
‘It’s LaSalle’s position that it’s prudent to strive for a balanced collection of risk-return combinations during and after periods of great financial stress. As such portfolio managers need to maintain a specific portfolio construction strategy, an investment discipline that compares required and expected returns, and a willingness to consider high impact scenarios that might trigger opportunities or threats,’ he added.
