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Brexit buying opportunity for Mideast and Asian property investors

by International Commercial Investment on August 2, 2016

Source: Financial Times

Real estate agents point to a shift from overseas as buyers make the most of currency swings.

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The UK’s vote to leave the EU sent shivers through London’s commercial property market, causing a third of ongoing property deals to collapse or be renegotiated.

But in the nervous weeks since the vote, some overseas investors — particularly from the Middle East and Asia — have identified a buying opportunity.

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In one high-profile example, a consortium of Saudi and UK investors last week bid $1.3bn for London’s Grosvenor House hotel, plus shares in the Plaza and Dream Downtown hotels in New York.

Jesdev Saggar, managing director at 3 Associates, the UK family office that submitted the offer, says the group accelerated their bid so that his Saudi partners could seek to take advantage of the drop in sterling since the vote for Brexit.

“There is a Brexit window of opportunity,” he says.

Big institutions, especially European ones, were major buyers of London real estate before the vote, but property agents have since observed a shift in favour of more agile private investors and corporates seeking to make the most of currency shifts.

Jassim Alseddiqi, chief executive of Abu Dhabi Financial Group, says his company — which has £2bn of developments already under way in London — will look to acquire further London sites as potential rivals may be put off by the prospect of Brexit.

ADFG, a privately owned group that includes investors from the Abu Dhabi royal family, plans to bid on Hyde Park Barracks in Knightsbridge, a prime London site that the Ministry of Defence is seeking to sell.

Mr Alseddiqi says he has also seen greater interest from Gulf buyers in the group’s homes in London since the referendum, with inquiries up 25 per cent.

“There is a huge demand now among Gulf Cooperation Council, dollar-based buyers,” he says. “If you would have asked Gulf visitors to London when they first knew that the UK was part of the EU, they would have said around a month ago [at the time of the vote]. It is very irrelevant to them.”

A private Middle Eastern buyer has meanwhile exchanged contracts to acquire 5 King William Street, an office block leased to Japanese investment bank Daiwa Capital Markets, for £90m.

Among deals terminated because of the Brexit vote, many involved institutional buyers; Germany’s Union Investment pulled out of a potential £465m purchase of a City of London office building immediately after the referendum.

Investment volumes into London real estate were down 50 per cent in the first half of 2016 from a year earlier according to Real Capital Analytics, and since then the shock of the vote to leave the EU has led many sellers, as well as buyers, to hold back, exacerbating the usual summer lull. As yet, there are no official data on transaction volumes since the vote.

“Institutional investors have become more cautious. For them it’s a ‘wait and see’ approach over the summer. They will come back in September and see what the temperature is like,” says James Beckham, head of central London investment at Cushman & Wakefield, the property agency.

“We are seeing some Chinese investors in the market as well as Middle Eastern players. If you’re a long-term private investor, intending to make a strategic investment, that’s looking 10 per cent cheaper in currency terms.”

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One London-based fund manager says Middle Eastern clients are keen to increase their exposure to real estate in the capital and secondary cities, as well as investing more in UK-based infrastructure programmes.

“The Kuwaitis are calling up, asking to get more exposure. They haven’t seen sterling this low in decades and have learnt to buy UK [property] in a crisis,” says the fund manager.

But he says his firm is also telling overseas buyers that there is limited commercial and residential stock available, advising them to wait until the market stabilises and more high-grade properties are put up for sale.

Middle Eastern investors have a long history of owning property in London, buying at least £5.9bn of UK property in 2015 as they looked to offset losses from the commodities slump. But Asian buyers — many of whom entered the UK real estate market after the 2008 financial crisis — have also been seeking to buy post-referendum.

As markets gyrated in the week following the June 23 vote, Hong Kong-listed Magnificent Real Estate bought a Travelodge hotel in King’s Cross from Henderson Global Investors for £70m on June 29. The deal had been under negotiation before the referendum, but Magnificent chose not to pull out.

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William Cheng Kai-man, chairman of Magnificent, said the uncertainty surrounding the vote had “provided the company an ideal opportunity to get into the high-demand hotel sector in London, and the falling currency has made the deal more attractive”.

Another City office, at 160 Aldersgate Street, is under offer to an overseas private investor, while the Singaporean property developer Hoi Hup Realty — which bought its first UK holding in 2015 — has made an offer to buy an office block at 63 Queen Victoria Street for more than £30m, according to people familiar with those deals.

Tony Gibbon, a partner at the property advisers GM Real Estate, notes that pricing has weakened, especially for less desirable sites.

“Whilst people were concerned about a Brexit, we were already witnessing a cyclical event ahead of the referendum,” he says.

“It was absolutely necessary that asset values for non-prime holdings needed to correct.

“That said, prime continued to attract bidders and post the vote those long-term investors are not going to go away . . . in relative terms, prime real estate yields remain attractive.”

International Commercial InvestmentBrexit buying opportunity for Mideast and Asian property investors