What we believe about real estate as an asset class
We believe that knowledge adds value at market, sector, location, asset and covenant levels. It is also a key factor in controlling risk.
Our investment approach focuses heavily on the pricing of real estate which, we believe, is strongly influenced by capital market factors such as bond and equity pricing. It is also affected by weight of money and sentiment which, in turn, are impacted by asset allocation decisions and the availability and cost of debt.
Access to stock, property level skills and risk management are essential for all types of investor. Investors and owners are seeking these skills either in one integrated package or as specialist individual service to supplement their own capabilities.
Real estate is a relatively inefficient asset class
This is caused by the heterogeneous nature of the products, the lack of a central market and the use of the traditional property evaluation processes, which do not mirror what is found in capital markets.
Real estate is a financial asset
Real estate has a series of cash flows, some of which have fixed interest elements and some of which are equity-like, depending on lease structure. Property is therefore influenced by many of the same factors that affect capital markets and cannot be appraised in isolation of other asset classes.
Research adds value
The characteristics of real estate itself, as well as the market mechanisms, means that research can add more value than in more efficient markets like equities and bonds because the market is more opaque and more pricing anomalies exist.
Asset and property management add value
Real estate is also the only major asset class where value can be added (or subtracted) after purchase. Real estate is normally ‘lumpy’, relatively illiquid and relatively expensive to transact, which means that trading is less important than other asset classes. With performance driven predominantly by income growth, over time, asset management and property management are extremely important.