Dec. 11, 2019
This article originally appeared in CoStar on Tuesday 10 December 2019.
Recent events in the investment market have once again highlighted the importance of transparency for investment decision making and the limitations on the ability of investors to withdraw their money from existing investment vehicles when they wish. No matter how much due diligence is done at the point of decision making, investors can always be blindsided by political risk and for funds there is a sacrifice in returns to be made by keeping a significant proportion of investors’ funds as cash, in case it is needed to satisfy investor demands for liquidity redemption.
But there are steps that can be taken to minimise risk and to make more informed investment decisions. What is becoming crucial is the need for all investors to have increased access to independent property valuations of real estate assets that are being managed, so that investors do not feel like they are in the dark. Details of future cash flows would allow investors to work out for themselves the rate of returns they can expect from their investment.
I would argue that investors need liquidity and should also be allowed more choice in the mix of real estate assets that they can invest in, so they can select those they want to invest in and those they don’t. At the International Property Securities Exchange (IPSX) we believe that true specialisation and asset and income transparency is the answer.
Our issuers will provide investors with the opportunity to invest in the shares of operating companies that own prime commercial real estate assets through the trading mechanisms offered by a fully regulated and public exchange. Each security will disclose information on tenants by risk profile. A six monthly valuation will be provided with a clear asset management programme and, most importantly of all, investors will be able to sell their shares whenever they like during market hours, with liquidity provided by market makers quoting firm prices, whatever the prevailing market sentiment.
There is currently no sign that central banks are about to enter a monetary tightening phase. In a “lower for longer” interest rate cycle, we believe there will continue to be a positive yield gap between real estate and bonds for the foreseeable future, providing investors with the returns they are looking for.
With interest rates and bond yields remaining low, we need new investment opportunities to match liabilities for the years ahead that are in secure assets and tradeable on a regulated market.