GLOBAL - Leverage is likely to become less important to property investors given the financial turmoil, according to Ian Gleeson, chief investment officer of global multi-manager investment at CB Richard Ellis Investors.
Speaking at the annual IPD/ IPF Property Investment Conference 2008 last week, Gleeson insisted leverage may "hold the key to what happens next", as its effects are just beginning to be seen, as the majority of highly-geared developments have over the past 12 months delivered approximately 40% in negative returns.
"It is this erosion of value and potential wide-scale loss of equity which is causing investors to ask lots of tough questions of valuers," said Gleeson.
"For a combination of reasons, we would expect the ownership of property in the near term to be less reliant on leverage because it is difficult to access, is less palatable, and because the market will reprice to such an extent that there will be less need to use it to enhance returns," he added.
The three main concerns for real estate, according to Gleeson, are the need for recapitalisation, stability of management platforms and a suspension of valuations, which might help deal with the turbulent market.
Moreover, the derivatives market is predicted to fall a further 25% in the UK.
This pressure is likely to continue as the greatest concerns for the capital market are currency movements, possible liquidity issues, refinancing capacities and counter-party risks, noted Gleeson.
"As investors look forward, we'll see a much greater emphasis on corporate governance. Capital is less abundant and investors are going to be much more discerning in how they will use it," he said.
Despite problems with leverage, Gleeson believes investors will continue to see property as an attractive asset and will hold onto the concept of specialisation, geographic diversification and incorporating multiple styles of investment into their portfolios.