Duncan Owen, the former global head of real estate at Schroders, has given his first interview since starting Immobel Capital Partners exactly one year ago.
The real estate professional, who has over 30-years’ experience in the property industry, took time off at the end of 2020 following nine years at Schroders' property investment platform. But he returned to the fray in January 2022 with Immobel Capital Partners, the European investment platform of Belgian developer, Immobel.
In a sit down with PropertyEU, the amiable rugby-loving property investor gives a preview of his match tactics as the European real estate sector enters a new cycle.
Magnificent opportunity
Immobel Capital Partners has embarked upon a process with partners and co-investors of seeking new investment opportunity, he reveals.
He says: ‘I think there’s a magnificent opportunity. I think we're only just beginning to see the consequences of the misallocation of capital since the global financial crisis.’
He is referring to the long run of zero and extremely low interest rates coupled with quantitative easing that led to asset price inflation.
‘Too much’, in Owen’s opinion. And now, values are falling across the market ‘almost like snow’, he says.
‘We are having to pay for some of that quantitative easing over the last 14 years and we are possibly seeing asset prices correct to what their true value is through a cycle.’
‘Asset price inflation has not been very discerning as it grew prices for both good and bad assets. So, we are looking, and we think the time is now right to buy prime assets at more attractive prices than might have been possible in the last five or 10 years.’
‘We’re finding that we're able to underwrite assets that are on average 25% lower than the previous year and valuations at the end of 2021.That doesn't mean they're cheap. Indeed, vendors still desire yesterday’s prices whilst buyers want tomorrow values. However, it means you have still got to add value to them and ensure they are truly world class by modern “green and sustainable” standards.’
Strategy
Leveraging the ‘DNA’ of its Belgian sponsor, Immobel Capital Partners is focusing on offices and residential investments with strong ESG value-add angles.
The first strategy is a green office impact fund of which White Rose is an example. In March 2022 - three months after launching - Immobel Capital Partners struck an off-market deal to acquire a 50% interest in the 28-acre, 500,000 ft2 office campus from Orion Capital Managers at a price valuing the property at about £110 mln (€125 mln).
Owen’s investment philosophy is that offices and residential are the two main asset classes providing the ‘anchor’ for where most people spend the majority of their time. All other uses are in a way ‘ancillary’ to serving people where they want to live and work.
‘All the other sectors have huge value yet thrive off the anchors of either offices or residential,’ he says.
Social and environmental impact
As well as the UK, the firm manages a Belgium and Luxembourg office fund that is fully invested. The focus now is to make fresh investments in prime assets in prime locations whose value can be significantly improved by upgrading the asset’s ESG profile via cap ex initiatives, retrofitting and repositioning the quality of accommodation.
‘I explain to investors the “why, how and what”. The why is we think we can improve the work environment and make assets more sustainable. We also think we can make 10%-plus returns – that’s the “why”. The "how" is by partnering with investors who also believe in the opportunity and that sustainable, future-proof assets are the way forward. The "what" is identifying the winning European cities and investing in prime located buildings, which are capable of improvement and reduction of carbon footprint.’
Capital partners
The firm is working with its balance sheet alongside other investors or clubs of investors whose investment horizon is the medium to long term.
But while that is going on in the background, Owen talks of inflation and other tricky aspects of real estate investing in this new cycle. On the issue of finance he mentions the company is currently seeking to buy an asset in London as all equity rather than finance it now.
On inflation, he says: ‘Inflation is a very difficult subject. I remember inflation in the early stages of my life in the 1970s. And I remember how difficult it is to get it out of the system.’
‘I've not really understood or believed the arguments of many economists in this cycle, that inflation will be temporary on this occasion.’
‘What you can end up with is core inflation. Because when you get a salary increase, it's there. It's embedded. You could even end up with periods of stagflation, and that’s hard for everybody in every industry.’
Fresh start
Despite such concerns, Owen is looking enthused and invigorated for what lies ahead.
When he left Schroders, he took time out to recharge the batteries after years of the regimented managerial grind with which any global head of real estate must contend. Now he wants to build something again and perform well for investors while doing the right thing via ESG. The market will be watching with interest.
Subscribers can read the full interview in the forthcoming edition of PropertyEU and as a PDF attached.
Supporting documents
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