Guillaume Cassou, partner and head of European real estate at KKR, sees a unique chance to acquire high-quality assets at reasonable prices due to a combination of strong real estate fundamentals and a dislocated capital market.

Cassou told delegates at the IPE Real Estate Global Conference & Awards 2024 in Madrid that he anticipates a window of opportunity in the next 18 to 24 months as liquidity issues ease and a new market equilibrium emerges.

Western Europe has shown surprising resilience during the recent spike in inflation and interest rates, and this, coupled with strong real estate fundamentals outside non-prime office space, points towards a “potential inflection point in the market”, he said in an interview with Nils Kok, finance and real estate professor at Maastricht University.

Cassou said sellers today are often responding to external pressures, rather than a lack of opporunities. This creates a window for investors like KKR to acquire high-quality assets at reasonable prices.

“From my perspective, this is probably the most interesting time to start investing,” he said. “It’s probably the most interesting time to start investing because the fundamentals are pretty solid.”

In addition to higher-return strategies, KKR is also investing in core-plus and debt, Cassou said, which “allows us to see across deals and the risk spectrum”.

Equity regains edge as debt market normalises

When asked about his preference between private debt and equity, Cassou acknowledged a significant shift in the market dynamics over the past year. A year ago, debt was a “no-brainer”, offering “higher returns with low risk”, but the market has changed over the past six months, caused by a gradual return of liquidity, he said.

While debt remains a viable option, Cassou said equity currently offers a more attractive risk-reward profile. There is a greater potential for returns and optionality associated with equity compared to debt where the “only upside is that you’re getting repaid – so you need to make sure that it is good”, he said.

The return of traditional lenders has also increased debt availability, but a “full return of liquidity” is not yet present. “But if you look at the gradual evolution, there’s been clearly some improvement on the liquidity for the debt side”, he said, adding that the market is more liquid and competitive than it was a year ago.

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