Philip Charls, CEO of the European Public Real Estate Association, is juggling a handful of challenges at the moment. As well as lobbying the EU over the potentially damaging consequences of the AIFM directive on the listed real estate sector, he is also building the investor outreach programme, where co-operation with sister organisations NAREIT and APREA will be key, as he explains to Richard Lowe
The age-old debate over the use of listed real estate as a proxy for direct property surfaced once more at this year's IPE Real Estate Investor Forum & Awards in Amsterdam. Investors often fall into two quite distinct camps: those who reject listed real estate outright because of its volatility and stock market correlation, and those who see it an accessible, liquid means to gain access to underlying real estate, perhaps complementing a non-listed portfolio.
Philip Charls, CEO at EPRA, says one of the main challenges facing the European listed real estate sector is addressing the preconceptions of those investors belonging to the former camp that reject listed real estate outright. EPRA seeks to overcome this challenge through education and by developing discussions on the matter. "It is our job to keep the debate lively. I would never say you should only go listed. It is not either one or the other. I don't see why lots of pension funds couldn't do the two," he says.
"You quite often have a debate and at your conference it came back. It is really important to make a division between the long term and the short term, and I think that is from where some of the confusion stems. We have seen volatility, yes, but it has been in a lot of areas dealing with liquid markets. But long-term I think the story hasn't changed."
This drive to educate and encourage debate comes as the listed sector is arguably in a strong position - certainly much stronger than it was two years ago. "If you look back over the last 18 months, I think the industry has done extremely well. We have successfully recapitalised the industry, whether it's debt or equity. There is a lot of cash - in the billions - sitting to be reinvested. There are no casualties. We are really well positioned to move forward," Charls says.
EPRA is committed to producing new research on listed real estate performance to help inform the debate, but Charls says it is also important to "reach out to investors", something the association does by visiting different countries. EPRA is also working closely with its equivalent associations such as NAREIT in the US and APREA in Asia-Pacific.
Charls says it is important to discuss certain aspects globally, such as regulation and accounting, to avoid "reinventing the wheel". He adds: "There are some areas where we really try to work together, because it is a global business. It is very important that we are all on the same page."
Charls recently toured Asia-Pacific with EPRA's director of research Fraser Hughes, visiting Australia, China, Hong Kong and Singapore. One of the things he took from the trip was a reassurance that investors from this region could provide a lot of capital for the European listed property markets. "We see a more and more serious appetite coming from some of the major sovereign funds in the world," Charls says. "There are major players, major sovereign funds that are looking into this industry. Whether you talk to the Chinese Investment Council or others in the region, they are seriously interested in investing."
As well as the issue of investor appetite, there are other concerns facing EPRA and its members, such as the wider macroeconomic picture and unsettling concerns over Europe's sovereign debt and currency crisis. But one of the most immediate and identifiable dangers they face is that of over-regulation. Reformatory zeal has gained momentum in Brussels, driven by a desire to prevent the recurrence of mistakes made in recent months and years, and to curb the excesses of the boom years that arguably spawned the global financial crisis. However, Charls worries - as is often the case with the tightening of regulation after the event - this will not help Europe's cause.
"What you see in the EU is a growing tendency if something goes wrong to try to fix it by more regulation," Charls says. He cites the EU bailout of Greece and the subsequent euro-zone emergency rescue package. The Greek government was able to effectively mismanage its economy, but the monitoring processes in place did not flag up anything prior to the outbreak of its national debt crisis. "That is apparently a fault of the system," Charls says. "That you cure this by more regulation is not the solution. You should have better instruments and monitoring of what you already have."
The one obstacle of regulatory reform that threatens to fall right into the path of EPRA and the listed sector is the Alternative Investment Fund Managers (AIFM) directive. The so-called ‘hedge fund directive' is intended to clamp down and regulate investment managers and vehicles that pose systemic risk and instability to the financial markets in Europe. Hedge fund managers are the main target, but other entities are threatened with being caught in the net as well, such as private equity vehicles and non-listed real estate funds. In more recent months it has become clear that real estate investment trusts (REITs) and the wider corporate sector are also game.
Charls says the AIFM is another example of "complete over-regulation". He gives three good reasons why the listed sector should be omitted. First, it does not pose a systemic risk. Second, it is "more than sufficiently regulated", especially given that there are some 130 analysts watching the performance of EPRA member stocks on a daily basis. Third and foremost, EPRA's members are normal operating companies. "They are not investment companies. They don't invest third-party money. They finance, they develop and manage their properties, and they do that as any other operating company," Charls says.
"There is no difference between Volkswagen or Carrefour in running the businesses. They have IT departments, finance, HR, investor relations, management board structures."
This is why EPRA has made a new appointment in Romain Triollet, who is the association's new public affairs director and will help bolster EPRA's work in lobbying the EU. Charls ventures that it may be the term ‘trust' in REITs which is misleading some people in Brussels. "It is not knowing our sector well, which, of course, we can only blame ourselves for."