How asset managers can maximise value in this difficult market

How asset managers can maximise value in this difficult market

25/04/2012

Sean Brew

In this challenging market it is particularly important for asset managers to be proactive.

Two quotes that resonate are: “Never invest in anything that eats or needs repainting," and, “If you aren’t willing to own stock for 10 years, don’t even think about owning it for 10 minutes.”

Landlords and occupiers must work together

The first quote was from Peter Lynch a renowned US fund manager. The second is from the legendary investor Warren Buffett. During the period 1995 to 2007 the annualised capital return from the IPD All Property Universe was 5% and for the period 2012 to 2016 from the same indices is forecast at 1.7%. Hence the message is clear - do not expect the market to deliver your property return anytime soon. Property returns and outperformance will be delivered through hard work and pro-active asset management.

The importance of managing income, both retaining the income and enhancing the income, will be at the heart of good asset management over the short to medium term and implicit in this is knowing occupier needs and working with them.

The flip side of the same coin is that the close relationship with the occupier will flag opportunities to enhance the income or extend its duration through lease re-gearing, or buying out tenant break options.

Assets can offer other income generating opportunities

Although the income from the occupier will remain the single largest income stream from the property, and remembering the market will not be helping landlords anytime soon, do scrutinize assets for other income generation opportunities. These can include: revenues from advertising companies to erect hoardings or digital displays if it is prominently located; revenues from telecoms companies to site masts if the property has the right physical characteristics and finally consider the Government subsidies for generating renewable energy through the Renewable Heat Incentive or Feed – In Tariff. All have their own issues to consider, which may preclude their implementation, but do have them in mind when looking at the asset.

Landlords must be aware of legislation changes

Landlords should also have a clear view on the long term and be planning for it today, even if the fruits may be a distant prospect. A good example of this relates to the implications of the Energy Act 2011. As currently drafted, the act has far reaching implications for F & G rated property come 2018. Assuming the intent is to hold the asset, decisions need be made about capital expenditure to improve the asset to a better energy rated category or seek to put in place a long term lease at (no doubt) a concessionary rent to postpone the problem.

Finally, as the locational dynamics of a property change make sure to review the planning position of your asset and seek to obtain changes of use consistent with the demand profile of the occupier base. Hindsight often lends a perspective and the lessons learnt can help shape better decision making in the future. Again Peter Lynch and Warren Buffett can give some timeless advice to aid decision making in our sector: “Never invest in ideas you can’t illustrate with a crayon.”

For further information relating to this news article contact 

Contact us now

Sean Brew
Head of Region - London

020 7198 2276

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