European investment volumes made a slow start to the year, as Q1 2019 saw fewer ultra-large deals compared to Q1 2018. The UK was subdued due to Brexit uncertainty, while a lack of product constrained volumes on the continent, but overall EMEA remains a highly liquid commercial real estate market with ample availability of both equity and debt.
The “Public Equity” Quadrant captures real estate exposure gained through ownership of shares in a company that is invested in real estate. Typically, these will be Real Estate Investment Trusts (REITs) or Property Companies. This class of investor may be diversified or sector-specific, and some will have exposure to development. Most will have a modest level of gearing (sub 50% LTV).
The “Private Equity” Quadrant relates to capital that is invested in entities that are not listed on a public exchange. Trading in these funds or companies will take place (if at all) privately. While private equity has a reputation for aggressively seeking higher returns through active management, higher risk stock selection and higher leverage, many funds falling into this category are in fact diversified funds invested in core real estate with little or no gearing.
The “Private Debt” Quadrant consists of lending to real estate investment that is not done via a public exchange. Usually, this will relate to lending by a bank or a fund. Because it is private, achieving transparency of even basic pricing terms, and hence performance over time, has historically been challenging.
Once again, we present the results of our Four Quadrants pricing model, which compares relative value across the universe of real estate investment options. Currently, it is just for the UK, but will be widened out to the rest of Europe in future publications. It is deliberately simplistic, in part due to a paucity of performance data for some of the Quadrants, but also because of a desire to maintain its accessibility.