• Could the Coronavirus Affect European Real Estate Investing?

    Could the Coronavirus Affect European Real Estate Investing?

    Whether we like it or not, coronavirus is one of the top concerns at the present time and one question arising is whether it will have any significant impact on real estate investing. I’m Ofir Eyal Bar, a real estate investor, and I would like to talk about this controversial topic, in order to clarify some of the misinformation currently spread by the media.

    Briefings on the coronavirus

    First encountered in Wuhan, China, back in December 2019, the new coronavirus (or Covid-19, as it has been named by the World Health Organization) had infected around 87,000 until the time of writing. Almost 80,000 of the cases are located in mainland China, but as of lately, South Korea, Italy, and Iran had shown concerning increases in their reported cases.

    Statistics show that the current death rate is 3.4%, with 2979 people unable to survive the virus. Specialists claim that the virus is fatal to the elderly and people with pre-conditions like diabetes, chronic diseases, or weak immune system. For more than 80% of the people infected, though, getting infected is like contracting flu. It should not be ignored the virus is contagious, being transmitted through direct contact or droplets.

    The power of fear

    Fear had emerged around people around the world during the past few weeks, as the virus is now spreading fast outside China. Is that fear motivated by solid facts? Let’s take a look at some numbers. Since 2020 started, more than 80,000 had died worldwide due to the flu. That number is more than 20 times higher than the death rate caused by Covid-19. Even though there is greater contagion risk, proper hygiene can prevent the spread.

    This is a new virus and people fear the unknown. We’re already comfortable living with the flu and it is possible that we may need to do the same with Covid-19, given how easily it can spread from human to human. However, the economic impact and real estate consequences must not be taken out of the equation.

    Economic impact not to be ignored

    Consumption has a large share of GDP in most countries and since fear is already affecting economic activity, analysts the global economy could face a contraction period, at least in the first half of 2020. As long as the virus continues to be the main highlight, people will be reluctant to spend.

    In terms of real estate implications, we did not have any economic downturn since 2008 and as a result, prices had grown exponentially since then. If real estate activity starts to shrink, we could see valuations ease, at least during the H1 of 2020. This won’t be good news for real estate investors, as their profit margin will be smaller and their commitment to invest in new places will change. All these factors can have a compounding effect, but will it last or will it be short-lived?

    Short-term vs. long-term implications

    There’s no doubt the coronavirus will impact the global economy at least for a few months, but as people will get accustomed to it, the long-term horizon depends mainly on governments’ ability to contain the spread. This is an issue that does not get solved overnight, but if it will extend beyond the middle of the year, we should expect to see greater consequences.

    Still, it’s encouraging to see China showing signs it managed to contain the spread, which raises the confidence for other countries to do the same. The rest of the world should have an easier task, given that cities are much smaller and the virus can be contained in restricted areas, with proper measures in place.

    Summary

    Based on the numbers we’ve highlighted, the coronavirus is not the kind of virus that will end the world. However, people are part of the market and how they perceive this issue will be key in determining the economic impact on the real estate industry. Real estate sales could ease, as long as the fear persists, but any sign of containment can reserve the tide and start to build up confidence once again. It mainly depends on us whether this will turn out to be a great issue or something that lasts not more than a few months.

  • How the US Economic Growth Affects the European Real Estate

    Based on the official data, the US economy had enjoyed one of the most impressive economic recoveries since the last financial crisis occurred. Even though that had a positive impact on the local real estate, we will try to analyze what did it do to the European real estate. My name is Ofir Eyal Bar, I’m a real estate investor focusing on the European market among others, and together we’ll navigate through a macro global picture. But before we get into the real estate debate, we must put into context a few important aspects.

    Things changes since the 2008 Financial Crisis

    The 2008 Financial Crisis had been one of the most devastating economic events since the 1929 Great Depression, taking the global financial system close to a complete meltdown. It started from the real estate market, with the famous mortgage-backed securities like CDOs (collateralized debt obligations) or CDSs(credit default swaps). Intended to reduce the investors’ risk on mortgage loans, these tools of financial engineering had ended up propping up the risk investors had taken, levering up returns between 2004-2007, only to see everything collapse in 2008.

    With the damage being done, banks collapsed, insurance companies got out of business and property prices dropped by more than 50% in some areas. Although the US had been blamed for the crash, the event had exposed plenty of cracks in the European finances, which takes us to the second intermediate topic, before we jump into real estate.

    US Dollar – world reserve currency

    In order to counteract the negative impact of the crisis, central banks around the world had cut interest rates to zero or negative territory and printed money in order to monetize the large pile of debt existing in the system. These measures had stimulated the economy had the real estate market as well, resulting in a new bullish trend that continues to last today. Although we had a strong recovery in some European economies, things had gradually started to change since 2016.

    The United States had been favored by a few important aspects: it was the largest economic power, the largest military power, and the US dollar is the global reserve currency. As a result, there had been huge capital flowing into the US, due to its safe-haven status, but that took a stronger turn when interest rates had started to rise, while Europe was still at zero or below.

    Since interest in the US dollar was higher as compared to the Euro, there had been an increasing demand for the US dollar and US-based assets, including real estate.

    Real estate influences

    At the present time, what we witnessing is slower economic growth around the world, but strong economic development in the US, favored by the previously-mentioned capital flow. Real estate experts believe that the real estate performance in Europe is expected to cool down even further, with any unexpected event being able to further dampen the current weak picture.

    After World War II, there had been close ties between the US and Europe, but we can easily notice some weakness in the past few years. There are no strong signs of economic decoupling yet, but with protectionism from the US side, Europe seems willing to establish a closer connection with China, a US rival and the only nation able to overtake the leading economic position.

    As long as the situation does not take any unexpected turns, we should continue to see a moderate slowdown in economic and real estate developments in Europe. The US will continue to benefit from its safe-haven status, but at some point in time, the trend will reverse.

    Changes to take place in the future?

    “Fade the U.S.” will at some point become the mantra but right now that’s not the case. Despite the strong economic recovery, the U.S. public debt had exceeded $23 trillion and for the last fiscal year, the government had a budget deficit worth 4.6% of GDP. Debt rising faster than the economy is not a sustainable trend in the long run and at some point, the US will start to devalue the Dollar in order to be able to service the debt. Because there’s a lot of dollar-denominated debt outside of the US as well, the currency weakening will stimulate the rest of the world, including Europe.

    Summary

    In this global uncertain and fragile framework, the European real estate prospects are hard to call. As a result, diversification is one of the only tools real estate investors can still use. Despite weaker momentum, there are still areas in Europe where growth potential is high. The suburbs of large cities or small cities where important infrastructure projects are underway are just two of the examples. As investors, we must always think one step ahead of anybody else and try to anticipate any unwanted development.

  • 2020 Real Estate Investment Trends in Europe

    Thanks to low interest rates and bond yields in many European countries in the negative territory, real estate investments are expected to retain their appeal to investors if we compare them to other asset classes. Despite political tensions and economic growth stagnation, there are a few real estate investment trends for 2020 that will be appealing for investors.

    A new approach to property selection

    The competition among real estate investors is on the rise and with it, the need for a creative approach to property selection is one of the most important aspects to bear in mind. Scott McGillivray, David Werner, Ofir Eyal Bar, and other popular investors are thus forced to focus on niche-level opportunities. Markets like data centers, senior housing, cell towers, hotels, multifamily buildings and retail are just a few of the areas where 2020 could be a fruitful year.

    Live-work-play

    Most urban areas are popular for being live-work-play lifestyle heavens and residents tend to want easy access to housing, 24-hour amenities and walkable commutes. Due to the economic development in the suburbs, we now see that not just major city centers are providing this way of life. According to a PwC report, real estate investors should expect more communities to embrace the 24-hour lifestyle since the trend does not show any sign of slowing down.

    ESG issues on top of the list

    Environmental, social, and governance (ESG) issues are now more important thanks to more millennials investing in real estate. The latest numbers show that more than half of millennial real estate investors believe ESG policies are impacting their investment decisions, much more than just 11% of the boomers and 25% of Generation X.

    The investors surveyed noted business ethics as their main ESG concern, followed by corruption, health and safety, responsible supply chain practices, energy use, and waste management issues.

    Senior housing properties

    With the biggest share of old people out of all continents, Europe will have to face a serious issue during the next decade. By 2029, baby boomers aged 75 will reach their retirement and as a result, they will be in need of new housing options. Senior housing is currently one of the most viable investment prospects for 2020 in Europe. Handling the aging population will be one of the greatest European challenges and real estate investors are already putting their money at work in order to provide housing solutions for the elderly.

    Summary

    These are just four of many other trends that might prove to be effective in 2020. The move towards specialization, potential rent control laws, the focus on community, and ESG issues could influence heavily what types of real estate investments will turn out to provide the highest return. With so many uncertainties on the horizon, investors will need to prove flexibility in the face of unexpected events. So far, the water is calm, but a continuous surge in political uncertainty could evolve in poorer economic performance and the real estate market will be in an uncomfortable situation.

  • Aspen Group Secured Important Deals in The Netherlands and Germany

    Up until now, it seems like 2019 will be another fruitful year for Aspen Group, the publicly traded real estate company, which managed to secure two important deals in The Netherlands and Germany. Registered on the Israeli stock exchange and with over 30 years of experience in real estate, the company currently owns over 375,000 square meters of yielding properties, rented out to over 260 tenants, at approximately 95% occupancy rate.

    Aspen Group is currently valued at NIS 400 million and it’s engaged in the acquisition, initiation, rental, management, and improvement of rental properties that include offices, services, commerce, industrial, and logistics buildings located mainly in Germany, Israel, and The Netherlands.

    Logistic center sold for €50 million in The Netherlands

    In mid-May, the company announced that it managed to sell a logistics center in the city of Almelo for about €50.6 million, recording a pre-tax profit of €6.3 million, giving free pre-tax cash flow and related expenses of approximately €24.6 million. According to the information available on the Group’s website, Aspen acquired the property back in 2012 for €25 million and invested another €9.5 million for renovation and expansion of the lessee – Timberland – on an adjacent land division.

    With Tsofit Harel as CEO and Ofir Eyal Bar as one of the main partners, the company holds 14 rental properties in The Netherlands after the sale, all located mainly in the office area. Based on a note issued by the company, it continues to look after other opportunities in order to expand its property portfolio in the country.  The company’s CEO welcomed the deal, and praised the importance of the realization:

    “We also completed the sale of the logistics center leased to Timberland in the Netherlands – an important realization that left the company with significant capital and cash flow. We will continue to work to improve the company’s portfolio of assets and to identify business opportunities in Israel and abroad.”

    Office building sold in the Stuttgart area of Germany

    The record for profit was set a second major transaction, when Aspen Group managed to secure another important deal for the year, after signing an agreement to sell an office building located in the town of Fellback, Stuttgart, Germany. The transaction took place in exchange for €48 million, leaving the company with a record €8 million in profit, pre-tax and other related expenses, and €18 million in free cash flow.

    Purchased back in 2014, the sold property covers 19.9 square meters and involved a partnership with Shlomo Insurance Company. Leased to the State of Baden-Wurttemberg, the property had a book value on the eve of the sale at approximately €36.5 million.

    Given the existing partnership, Aspen Group holds 70% of the property company, while Shlomo Insurance Company has the remaining 30%. Tsofit Harel, the company’s CEO praised this second deal, as well:

    “We have identified the property as having significant potential, and alongside growth in the German office market we have achieved an attractive return on investment.”

    We can conclude that 2019 had been a fruitful one for Aspen Group, which managed to end the first quarter with a 12% increase in revenue to NIS 64 million, and also a 19% net profit growth as compared to the same quarter a year ago. Both Germany and The Netherlands are expected to be in the focus of the company, favored by better economic conditions. As Southern Europe seems to be exposed due to high levels of debt-to-GDP, these two countries should benefit from sustainable debt levels and thus the real estate market might continue to expand at a consistent pace.