Reviews. Commentaries. Opinions.

Real estate investing in the time of Coronavirus

Real estate investing in the time of Coronavirus

The Coronavirus effect...

Renting a property without paying for it is no longer illegal. McDonald’s and Burger King in the UK are just two examples of a ‘blue chip’ tenant refusing to pay or looking to reduce their quarterly rent payments. 

Legal protection for commercial and residential tenants in a number of countries has already been enacted. Due to Covid-19, these tenants are not legally in breach of contract by not paying their rent for 6 months, even if they have the assets to do so. 

In other words - some of the most basic premises of investing in real estate no longer hold true

In many countries, landlords are finding themselves exposed to a legal situation where they cannot evict non-paying tenants. These private individuals and corporations can shrug their shoulders, blame Coronavirus and invite the landlord to commence lengthy and expensive legal proceedings, where the leaseholders claim of ‘Force Majeure’ may be upheld in a court of law. Those landlords, who borrowed money to purchase these real estate assets, will be continuing to make mortgage payments to the bank without receiving a penny of rent. 

The Corona crisis has hit real estate hard. The illiquid nature of real estate, the new uncertainty of the income, the impracticality of selling down a percentage of the asset (you cannot sell down 20% of a house) will all have a long lasting impact on this sector. Furthermore, the lack of being able to know an exact value (mark to market) for the investment at any time is magnified during times of crises. There are also large entry and exit costs (legal work, real estate agents, property taxes, etc.). 

Stock markets allow clients to always know the current value of their holdings and to be able to sell down a percentage of their assets should they need some liquidity. This can be done quickly, cheaply and easily. 

As a wealth manager, I often find clients are deciding whether to invest in the markets or in property. The Corona crisis is pushing many clients with property interests to rethink their investment philosophies. 

For those investing in commercial real estate, there is also an added complexity as to the future of office space and retail businesses. Working from home has been viewed as a success by most companies and employees have enjoyed the work/life balance benefits.  The move towards ordering everything we purchase online makes one question how much office and retail demand there will be in this new environment. 

The real estate landscape has changed beyond all recognition. It will never be the same again. Real Estate investing for the private investor must now be considered high risk.

The writer and Pioneer are unaware of any conflict of interest at the time of publishing the article. The aforementioned should not be taken as an investment recommendation.

2019 Markets Review

2019 Markets Review

2019 summary & 2020 predictions

2019 was a vindication year for the traditional asset management industry and asset allocators like us. Many skeptics sat on the sidelines in cash and missed the best year for returns we have had in a very long time. Our clients enjoyed excellent returns in both absolute and relative basis.

While 2017 was low positive and 2018 was negative, 2019 was very positive and brought the three-year returns comfortably into the annual targeted return range. This is the nature of the beast - market returns simply do not go in straight lines.

Our eyes now turn to 2020. As always, the crystal ball has its limitations and across our team we have slightly differing views for 2020. However, the consensus view is to remain faithful to our asset allocation principles.

2019 Half Year Review

2019 Half Year Review

2019 half year summary & predictions

I have just returned from spending two days with Pimco in London at their annual conference for investors. Pimco is one of the largest bond specialist firms in the world with an incredible depth of resources. The audience consisted of investment professionals from Europe, and it was apparent that everyone had come to hear not only Pimco’s macro-economic view, but also to clarify just how concerned we, as investors,  should be and what changes we should be making, if any, in the current circumstances.

It was an exceptionally high-level discussion and I will try to share some of the messages with you below. An interesting aspect of the investment world is how different personalities gravitate towards different asset classes. Optimists gravitate towards equities, pessimists to bonds and those with perhaps a tad too much hubris towards hedge funds. Pimco is a firm specializing in bonds. They ooze caution through the air vents. So whilst they were professionally non-committal about whether we are heading towards a cyclical change and/or recession, or not, they did an excellent job trying to identify whether there are any relevant signals now. The bottom line is no panic signals but elevated levels of caution looking into 2020.

Q1 2019 Global Market Review

Q1 2019 Global Market Review

Markets are strong: sell down and take profits or remain loyal to your asset allocation?

When markets are going up strongly as they did in Q1 2019, no one asks tough questions and most investors focus on other aspects of their lives. Strong markets make our jobs as wealth managers easier. The main question being posed on a daily basis is should we sell down and take profits or remain loyal to our long-term plans and beliefs. This is a valid and serious question, which is worth the debate. Last year, January 2018 was a strong month and the rest of the year was negative, particularly February and the 4th quarter. One has to ask the question if the gains from Q1 2019 are likely to be given up later in the year or not.