At our Funds Focus event on 23 November 2022, a panel of experts gathered to discuss the current landscape for Real Estate investment and why Jersey can provide stability and robustness during these challenging economic conditions.
Rising inflation and interest rates are putting real estate investment under pressure. During these challenging times, it is crucial to work with partners who can provide stability and help managers adapt for long-term success, according to experts at our real estate-focused event in London.
Our Director of Funds, Nicola le Brocq, said: “Jersey is seen as the domicile of choice for alternative assets and a destination for managers. Its growth rate has outpaced its closest competing jurisdictions in recent years.”
“The island offers exceptionally high standards of service and governance and has a large pool of expertise including local professional and non-executive directors with extensive knowledge of funds and a variety of asset classes.”
Weathering the storm
During the keynote, Richard Urban, Founder of Rivington Pike, pointed out that amid the uncertainty in the markets, governance and risk management are essential to avoiding losses.
We are in a period of inaction for some investors as they wait for things to get worse, he said. But while there are risks, particularly so right now, Urban said it is about mitigating those risks and trying to minimise the impact.
Urban called Jersey an “island of stability” which creates peace of mind because it has very experienced professionals who can help “weather the financial storm”.
Melinda Knatchbull, Chief Financial and Operating Officer at Immobel Capital Partners, pointed out that despite the economic doom and gloom, real estate is still seen as a great inflation hedge.
“Over the long-term cycle, real estate’s risk adjusted returns have been very favourable compared to equities,” she added. “There has been a rise in alternative sectors within real estate such as student housing, life sciences or data centres.”
Alistair Horn, Partner at Mourant said there has been a slowdown in real estate, but transactions are still going ahead and tend to be more equity-based and sizable.
“We’ve seen promoters operating shadow valuation schemes, and as a result, we’ve seen a few clients swapping values or starting to take steps to. This shows some of these assets are particularly complex and therefore very difficult to value right now,” said Horn.
For example, investor appetite has waned in shopping centres which are “barely out of Covid-19” and now the increase in debt costs is proving to be “really complicated” for the sector.
There continues to be an increasing focus on specialised and particularly non-traditional operational real estate such as student housing and data centres, said Ben Eaton, Shareholder at Greenberg Traurig.
“We are seeing a lot of focus on credit in terms of capital raising. Investors are focusing more on joint ventures and club deals, and less so on multi-investor funds.” said Eaton.
Raising the bar on ESG
Last year, the Jersey Financial Services Commission introduced a set of commercially viable and proportionate disclosure requirements relating to sustainable investments aimed at addressing greenwashing.
Horn explained Jersey’s proportionality rules are “dovetailing” with the EU’s Sustainable Finance Disclosure Regulation (SFDR) ecosystem.
There is now more focus on the ‘Social’ part of ESG in real estate as investors are keen to see how a building interacts with the local community and local environment, said Knatchbull.
She added: “We’re seeing ESG elements being baked in right from the start when you underwrite the deal and evaluate the profitability of the deal, and how much you need to invest to bring the building up to standards.”
Jersey implemented its economic substance rules in 2019. Horn said the topic of substance comes up in a lot of conversations with asset managers who have to fill in lengthy forms from LPs.
Eaton said substance goes beyond everyday tax compliance as it impacts key business decisions such as what hires should be made and where those hires should be made. An often overlooked point is that there is convergence between substance rules and investors’ interests since investors increasingly focus on knowing who is ultimately responsible for their capital.
