Brace yourselves: Distressed Assets Are Coming
We're entering November and the uncertainty of the market is at an all-time high. Many European countries are beginning to execute lockdown measures such as Spain, the UK and France. This is a particularly frightening landscape to see since we've all felt the impacts of an economic shutdown from the first lockdown. On the verge of a second blow at the economy, investors are in a little bit of a pickle when it comes to investing in 2021.
The main talking point in most REIT's investment committees is to whether or not wait for assets to become distressed or adjust risk policy and invest in much safer assets.
However, the general consensus in most European REIT's is that it's still too soon to invest in those types of opportunistic assets, as we're in a timeframe where assets are not yet distressed, nor they amount for considerable value-add or core potential. This middle ground has generated a lot of "holding back" from the investment funds all across the world.
On the other hand, a lot of skepticism has slowly taken over several asset classes such as hospitality and office. For what was once a sure-shot for profitability, many investment firms admit that "right now, no one really gets excited with office or hotel assets anymore". This is to be expected, however, if you asked anyone in the real estate business that this could be a possible reality – they would've told you were out of your mind. In the long but almost inevitable road to become distressed, the market has understood these will go for ridiculously low prices in the upcoming years.
Now, should you opt to wait or gamble with the current uncertainty? This is what many investors have asked us. Our opinion is very clear, there is no doubt that a massive shake up will take place in the industry, but this shouldn't turn you off from investing. Having an extensive expertise in value-add and opportunistic assets, we think that the time to invest can very well be now – hear us out: it may sound bonkers to be supporting high risk investments in a time where instability has never been greater but let's say you want to invest in land, or in a project from scratch. If the project takes around 3 or 4 years to be complete, you're looking at 2024 – by then it's estimated that the economy has began to normalize once again and the resulting leverage of having a brand new, highly sophisticated and capable asset in the market will be enough to result in major returns. This is the very same philosophy that a small number of investors had with the 2008 crisis, and these very same individuals were called "crazy". All we know is that most became instant staples of Real Estate performance after their reinforced comeback a couple years later.
Plus, a very important point to underline is the necessity of technology in your future investments. Now, more than ever, user experience is in many ways related to user well-being. Like the automotive industry, if your cars aren't packing a good, intuitive and capable infotainment system, you're already missing out big time. Home automation and the presence of new technology in asset renovation is a must and this will help you even further, regarding appreciation and return in the future of your investments.
We believe there is no real money to be made when everything's good. It's in the rocky times that world-class investments are made. No one will be remembered by how well they performed in a near perfect scenario but rather how they managed to come on top in a time when everything seemed to defy their success. These are the true Real Estate Connoisseurs.
And once again, Portugal takes advantage of all this after we have passed through this economic restraint, and comparatively to the rest of the world (especially Europe and the emerging countries), through our new infrastructures and hospital facilities, we created conditions for tourism to boom again.