Cook said that in times like these there are winners and losers:the flight to quality favours premium and the better A Grade buildings.
“The B and C Grade assets have not really recovered. This is where the bulk of the fall in asset values will be felt,as witnessed by the number of such assets on the market,or being quietly marketed,” he said.
The listed AREITS are in an invidious position,they can’t simply hang on and ride through the cycle as they should,like large privates,they have to deal with the here and now
Investa group executive Michael Cook
Listed property investors are also in for a bumpy ride,with the structural changes resulting from flexible work practices likely to hit office markets and valuations.
Cook said Australian real estate investment trusts (A-REITs) are selling “not because they want to,but because they have to”,to serve fund redemptions and debt issues as equity markets come under increasing pressure.
“The listed A-REITS are in an invidious position,they can’t simply hang on and ride through the cycle as they should,like large privates,they have to deal with the here and now – and asset re-weighting and panic selling create a spiralling effect,” Cook said.
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The turmoil has been triggered by the collapse of the smaller bank lenders in the US and the sale of Credit Suisse to UBS. It has led to a crisis of confidence among investors and that is spilling over to concerns about other sectors.
Matthew Bouw,Cushman&Wakefield chief executive for Asia Pacific,said commercial property investors would likely wait and see how central banks react to the crisis,resulting in market caution and a longer and potentially more protracted slowdown in activity.
“The RBA’s interest rate increases are intended to dampen economic activity as a way of taming inflation,” he said. “The impact on commercial real estate can’t be disputed – as interest rates go up,so do repayments,and without commensurate increases in revenue,operators will come under increasing strain,with highly leveraged players the most vulnerable.”
Sequoia investment manager Winston Sammut said in all the confusion,investors should focus on identifying quality assets,with quality management,leased to quality tenants (with strong covenants),to separate the A-REITs that would likely rise to the top of market valuations.
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“Looking more closely at the commercial property market,albeit from a different angle,if the existing property valuations are indeed to be believed,then the listed A-REIT market must be offering great value for a long-term investor,given they are trading at such large discounts to their stated net asset values,” Sammut said.
“Therein lies the dilemma. Are the values real? The market has taken the view that they are not.”
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