BLOG: IPD goes to Hollywood

Attendees at the IPD annual conference in Lisbon last week saw a new star born when John Forbes, partner real estate investment management at PwC, stood up to argue against the hypothesis that risk is the most important issue for investment in real estate.

During an impressive presentation evoking images of the Titanic hitting an iceberg while Leonardo Dicaprio and Kate Winslet were engaged in a steamy lovemaking session in the ship’s hold, Forbes demonstrated that return, not risk, is the all-decisive factor to focus on.

Thanks to his convincing performance together with Karen Sieracki, director of Kaspar Associates, emotion won from rationality during the debate between the pro-return and pro-risk side. Against the odds, Forbes-Sieracki managed to solicit support from 55% of the audience in the vote for their argument that return, not risk, is the most important issue for investment in real estate.

Despite their ultimate loss, the pro-risk American-German team certainly provided a sound and comprehensive overview of why it is vital to understand the risk profile of investments. ‘If you only focus on return, you don’t understand the equation. And if you only focus on performance and return, you miss the key drivers,’ alleged Hauke Brede, chief risk officer at Allianz Real Estate.

NAVIGATING POTHOLES
Forbes and Sieracki retaliated by arguing that real estate investment managers are not in the industry to avoid risk, but to manage their way through the potholes. The real estate industry has gone from one extreme to the other, Forbes contended: ‘We’ve gone from one period and one experience of ignoring risk, when everything was triple A, including sub-prime mortgages and Greek bonds, to now when everything is very risky. We’re now at risk of arguing fantastic risk management models and analysis can solve all our problems which is as dangerous, pernicious and misleading as all other ideas. You have to get out there, you have to accept risk to make a premium. If that’s not in your mind-set, you may as well stay at home in Southampton.’

Not quite the makings of an Oscar performance, but he could certainly consider an acting career if his consultancy work dries up when he leaves PwC this summer to start his own business.

SURVIVING CAPTIVITY
In another memorable performance, John McCarthy, BBC journalist and broadcaster, gave a captivating account of his ordeal as one of the hostages in the Lebanon hostage crisis in the late 1980s. After a rather noisy rendition of this year’s IPD Awards presentation during the gala dinner at the Sheraton hotel, the room fell completely silent when McCarthy took the stage to recount his terrifying experiences.

There were many poignant moments, but a particularly memorable one was his meeting with fellow-hostage and Irishman Brian Keenan in the extremely confined space of their cell. A quarter of a century later, the description of the wild-eyed bearded Brit setting eyes on his equally startled and dishevelled Irish counterpart had something of a comical element.

Despite initial communication problems caused by what McCarthy described as Keenan’s incomprehensible Belfast accent, the pair developed a close and intimate relationship spiced with humour in their remaining years as hostages. It was that, McCarthy acknowledged, which helped him get through that darkest period in his life which ultimately totalled more than five years until his release in August 1991.

TURNING POINT
A sobering but inspiring message, as was that earlier in the day of Carlos Moedas, Secretary of State to the Prime Minister of Portugal. Portugal may not be out of the woods yet, but the message that came through was that signs of a turnaround are now visible.

And to end on an uplifting note, Europe overall is in a better place than it was at the time of the last IPD annual conference last year in Frankfurt, according to Thierry Malleret, author of 'Disequilibrium: A World Out of Kilter' and founder of the Monthly Barometer. A visionary and spokesman rather than an economist or an ideologist, Malleret is convinced that the Eurozone won’t collapse on the basis of his ongoing conversations and discussions with European bankers and politicians.

Indeed, Malleret even sees opportunities in countries that have been suffering these past few years including the Iberian Peninsula, but also Greece and Italy. Maybe real estate investors should take heed of moderator Piet Eicholtz’ tip and buy parking garages in Greece. As he pointed out, the Greeks may not be able to afford new cars, but there will still be plenty of second-hand ones five years from now.

Judi Seebus
Editor PropertyEU