Property thrives and dodges hazards but ‘music will stop’

The “positive energy” displayed at MIPIM, returning to its traditional March slot after a two-year pandemic-induced hiatus, was reassuring according to Faro Capital Partners’ managing partner Guillaume Turcas.

“I was really pleased to see a lot of professionals coming from all over Europe, the US and the rest of the world, gathering and sharing ideas.”

And he added: “For the last two years we’ve been skipping these big events where multicultural people get into one place and share ideas.”

And, although the three top sectors – residential, sheds and meds – were still very much in evidence at MIPIM, investors are beginning to turn their attention to the value-add and opportunistic assets in the retail and hotel sectors.

“Value-add and opportunistic money has to go somewhere so those guys are now looking at these kind of blacklisted assets and it’s really interesting to see how this capital is trying to penetrate former no-go zones.”

Turcas was also impressed at the persistence of the sector in the face of inflation, corona virus and the war in Ukraine. “I’m amazed by the capacity of investors and partners in real estate to be so willing and pushy around deals. We all have TV and when you put on the news, it is pretty scary,” he said.

He does not feel that investors are underplaying the current risks. There is now more research available on the sector and compliance requirements are now stronger.

“Investment is now much safer than could be done before the GFC, in the early 2000s or even in the 90s, when it was mostly a case of gut feeling,” Turcas said. “There are a lot of blockers before doing any investment and that’s a good thing.”

But he added, “at some time point the music is going to stop.”

“I really hope that the equity behind the debt is not going to push values too much. This is where we have to be really careful in underwriting value-add opportunities.”

For mid to long-term opportunities, the risks are lower. He said more critical is where the horizons are short term, where a quick turnaround is required. That could be more dangerous to figure out, Turcas said.

Click on the video to watch the full interview or listen to the podcast below.