“The more interest rates stay on zero, the less people know where they should invest money in”, Pedro Coelho, Vice President at Portuguese Real Estate manager Square AM, says in an interview with Funds Society. And, he remembers, “Core Real Estate has given higher return on a historical basis”.
From your experience as a real estate fund manager, what of these two options has more potential in the current environment: direct investment in Real Estate or the investment via traded securities related to the sector?
It depends on the investor expertise and size. If it has expertise and size enough it should get profitable to invest directly. If it has not that expertise and have not so much money (or both) it should invest indirect.
How do the Square’s funds work: are they investing directly? How long have you been investing this way?
Each member of Square AM top management team has more then 25 years real estate experience investing directly. And it has invested successfully in excess 4 billion euros in Real Estate over the past 25 years in Portugal, Brazil, Russia and USA.
Are investors willing to capture the iliquidity Premium of the direct investments? Is this Premium high enough?
The more the premium is getting shorter the less investors stay to pay it.
Income… is one of the reasons that people mention when investing in Real Estate. Are you focusing on income in some or your products?
We have two different types of products: some distress assets funds to make restructuring of Bank balance sheet and we have a income Fund that has 330 M € unlevered. This Fund bet MSCI Index on income every year since 2006 and won the MSCI award as the highest Portuguese portfolio return over the last 5 years (3 of each as Iberian award).
What are the main reasons why people should invest now in the asset class? Are you seeing a increasing interest? Why?
The more interest rates stay on zero, the less people know where they should invest money in. Core Real Estate has given higher return on a historical basis.
Regarding the situation of the market, it seems the real estate market in Europe is not as cheap as it used to be after the crisis (2008-2010). Are you still seeing distressed opportunities in some markets in Europe? What about Spain and Portugal?
There are always distressed opportunities. In South Europe, Bank restructuring is still one of the main trends. In the other countries, although is not a huge problem as it was, due to economic dynamic is always a thing to deal with.
In Spain, in which sectors are the best opportunities? Are you concerned by the political situation?
I would say that for the moment being there a little “on hold” to see what happens after June elections. Although, if we see last results, it could be a good lesson for all politicans. Just a management governement, managing the previous budget and economy growing at 3,5%. Why do we need a true government?
And what about other markets in the world: where are you seeing the best opportunities?
I think we are going to assist at a main recovery from the emerging markets, as they suffered (and their currencies) big depreciation.
The market seems attractive in an low interest rate environment but… if the Fed starts to hike rates… What could be the impact in the asset class? Are you concerned about this?
We should always be concerned about it, but my own view is that we are not going to assist at a hike in FED rates…
In the last years we have seen liquidation and closes in some real estate funds in Spain. After the adjustment, are the remaining funds in a better situation? Could the sector face more problems in the future that could force more closes?
It always depends on the economy and on the management skills, but dynamics also occur in the other asset class like bond and equity funds.