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Asian investors return as UK real estate market rebounds

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A new normal is emerging in the UK real estate market, with its resurgence as a popular destination for capital investment from Asia following the effects of the covid pandemic and Brexit.

Iain Hindhaugh

Real estate adviser Knight Frank’s annual London Report published in February stated that GBP4 billion (USD4.6 billion) is to be invested into the London office market in 2022. Much of that is expected from the Asia-Pacific region, with investors from Singapore, Hong Kong, Malaysia, mainland China and South Korea among others. The GBP4 billion is nearly double last year’s volume of capital from the region.

“That investment did slow during the pandemic, although the reason for that might be more practical than due to any negative perception of the market – travel restrictions – meaning that inspection of buildings was more difficult, with certain investors reluctant to invest significant capital in a real estate asset they had not seen,” Iain Hindhaugh, real estate partner at Addleshaw Goddard in London, told Asia Business Law Journal.

“Now that travel restrictions are loosening, we are seeing an increase in transactional activity by international investors.”

Linda_Jacques-sLinda Jacques

Linda Jacques, a partner at Lester Aldridge Solicitors in Southampton, agreed that most of the Asian investment coming into UK real estate is largely because the market is vibrant, especially for properties in London.

“The real estate market was very hot before the pandemic. It dropped down and now it has started to pick up again,” said Jacques. “Overall, the UK is very open to investment from across the world as it doesn’t put up too many barriers, is still very easy to open a new company as the government gives incentives to companies coming to the UK and the tax is quite good here.”

While the wider global political and economic outlook still does cause concern, Hindhaugh said demand remains from opportunistic investors who may be seeing a slight shift in recent months to a buyer’s market, with opportunities to create value.

An example of this is Lembaga Tabung Haji’s (TH) acquisition of 33 Horseferry Road in London, a building occupied by the Department of Transport, for GBP247.5 million, which closed over the traditionally quieter summer months. TH is an Islamic institution providing facilities also as banking for Malaysian Hajj pilgrims and also manages investments.

“The market fundamentals remain strong, occupier demand has returned despite the recent trend of working from home, with employers seeking out higher quality buildings to support the race for talent and the changing priorities in that talent pool,” said Hindhaugh.

However, Hindhaugh warned that one of the key changes in law for international investors to be aware of is the Economic Crime (Transparency and Enforcement) Act, 2022, which came into effect for all practical purposes in August.

It requires most overseas entities acquiring UK real estate to register at Companies House and provide full details of its beneficial ownership. This also applies to owners of existing assets who will need to register before 31 January 2023.

The act is designed to increase ownership transparency in the UK real estate market, which has become increasingly politicised. As a result of the conflict in Ukraine, questions have arisen about who actually owns real estate in the UK and the extent to which property might have been acquired using illicit capital.

“Previously, many offshore companies could acquire UK real estate and the ultimate owners of those offshore companies could largely be hidden behind various trust structures, and the use of companies from jurisdictions with a high degree of secrecy – the British Virgin Islands (BVI), Caymans etc,” said Hindhaugh. “The BVI, in particular, has always been a popular choice of jurisdiction for [property] acquiring companies from the Asia-Pacific region.”

With most of the investment being channeled into London and Southeast England, Jacques of Lester Aldridge said the government had been trying to encourage investirs to look beyond these areas.

Jacques said the government’s Leveling Up policy aimed to disperse the financial wealth around parts of the country that may have fallen slightly behind. Scotland, Wales, Northern Ireland and Northeast England are the four regions where the government is really keen to see investment flow.

“Whether now it’s a buzzword or not, there’s definitely a focus to try to get more investments into those regions as a result of a big push for Leveling Up,” said Jacques. “The UK is very keen to attract all investment in technologies, in particular, but I think in all areas, everything is possible.”

Regarding policy developments, Jacques saw the government having more power to oversee investments, mergers and takeovers of certain companies through its National Security and Investment Act 2021, which took effect on 4 January.

This act allows the government to screen companies that are trying to gain control of another company or asset in 17 sensitive sectors of the UK economy.

“Since 2021, there has been more emphasis on certain key sensitive areas of the business, but I think the UK is just catching up with the rest of the world in similar legislation,” said Jacques.

The UK real estate market slumped due to the “no deal Brexit” risk leading up to 31 January 2020, when Britain finally withdrew from the European Union. At the same time the covid pandemic was beginning its global spread from Wuhan, China, which had weighed on the economy for at least two years that saw lockdowns of communities and travel restrictions imposed.

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Rising interest rates are having a mixed impact on real estate and construction in Vermont

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The doubling of interest rates over the past year is affecting construction and the real estate market across Vermont in different ways.

Some observers say the spike is scaring potential buyers away from purchasing homes.

Joe Carelli is among those observers. Carelli, president of Citizens Bank for New Hampshire and Vermont, said applications for mortgages and refinancings have slowed down significantly. But the economy, he added, is still robust.

“We’re continuing to see very strong employment numbers,” Carelli said. “The indicators today don’t point to a recession.”

Demand for housing remains very strong, according to David White, founder of White and Burke, a Burlington real estate management company. White said builders can still build single-family homes and sell them at a profit.

The construction of multifamily housing is harder, White said, because the costs of building have gone up dramatically, with rising interest rates partly to blame. And while rents have gone up, he said, outside of Chittenden County, developers cannot charge rents high enough to recover the cost of construction.

“Elsewhere in the state, it’s darn near impossible right now to make those numbers work,” White said.

He predicts that, with high interest rates, construction will slow down.

“As interest rates go up, it makes it harder to finance a project,” White said.

Average interest rates on a 30-year mortgage have risen from 3.1% a year ago to 6.6% now, according to the Federal Home Loan Mortgage Corp., which calculates the rates based on thousands of applications it receives from lenders across the country when borrowers apply for a mortgage.

Steve Kendall, the senior residential loan officer at Morrisville-based Union Bank, said he cannot remember a time when interest rates rose as quickly in a single year, but he does not see higher interest rates as having much of an impact. He said he has seen a slowdown in residential construction, but he attributes that to the fact that winter is coming, and not to interest rates.

According to Kendall, builders and remodelers are moving forward with residential and commercial projects.

“Since there’s such limited inventory, I don’t think the rates are going to bring developers and projects to a screeching halt, because there’s still the demand,” Kendall said.

In northwestern Vermont, the number of new homes on the market in October dropped from the previous year by 9.2% for single-family homes and 2.1% for townhouses and condos, according to the Northwest Vermont Realtor Association.

Sales of single-family homes fell during that time, too, by 20.7% for single-family homes and 4.5% for condos and townhouses.

Homes are still selling fast. The average single-family home in northwestern Vermont was on the market for 28 days and the average condo or townhouse for 13 days, according to the Northwest Vermont Realtor Association.

Prices also appear to keep rising. The median sales price for a single-family home rose by 9.8% in that year, to $435,000. The median sales price for a condo or townhouse rose by 16.3%, to $330,000.

The doubling of interest rates has had an effect on how much of a home first-time buyers can afford to purchase in central Vermont, according to Tim Heney, a real estate agent in Montpelier. Heney noted a decline in the number of buyers in the last two months, but he is not certain whether to attribute that decline to interest rates or to the annual dropoff in buyers toward the end of the year.

In Rutland, real estate agent Joshua Lemieux said he is no longer seeing offers of 30% to 35% above the asking price, as he did last year. Because of that, he said, even though people have to pay a higher interest rate on their mortgage, they are paying more or less the same as they would have at the lower interest rates that accompanied higher prices last year.

In Bennington, interest rates appear to be having an impact, according to real estate agent Lilli West.

“It definitely has slowed things down, and that is what the feds wanted to do,” West said. She said she sees this especially with regard to investors, who had made Bennington the focus of tremendous real estate activity in 2021.

“It’s really dried up the investors,” West said. Because they are being scared away by rising interest rates, they are no longer competing against first-time home buyers, and those buyers have an easier time now, West said.

“Now they’re finally able to not be in as many multiple-offer situations,” West said, though she was stressed that the real estate market is still strong.

“I would say it’s comparable to 2018 and 2019,” periods of strong economic growth nationwide, West said. It’s just not as strong as it was in the first two years of the Covid-19 pandemic.

She is noticing that the rising interest rates are leading sellers to rethink their decisions to sell.

“When you’re at a 30-year mortgage at 3%, you don’t want to lose that and go to a 7% mortgage,” West said. Interest rates hit 7% last month before easing to 6.6%, according to the Federal Home Loan Mortgage Corp.

In the Bennington area, West said, high interest rates have meant fewer cash buyers. She attributes that to the fact that cash buyers often pull money out of the stock market when they want to buy real estate, and with the stock market driven down by high interest rates, people are reluctant to pull their money out of the market at a loess.

But in Montpelier, Rutland and parts of southern Vermont, cash buyers are still showing up, real estate agents told VTDigger. Cash buyers can drive other buyers out because sellers do not have to wait for the buyer to come up with financing, and they can also drive bidding wars that leave first-time local buyers out of the picture.

‘We’re still seeing some cash sales,’ said Claudia Harris, a Weston-based real estate agent who also covers Ludlow, Winhall, Londonderry, Jamaica and Peru.

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Advice today on leasing commercial real estate might surprise you – Orange County Register

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Like the strong weather patterns of late, much can be said for the headwinds in our commercial real estate market this year.

Shaking off the cobwebs of a post-pandemic hangover, 2022 started with great momentum only to be cooled mid-year.

We received some decent economic news of late with the consumer price index not increasing as fast and some major retailers posting better earnings than expected. But our path forward still remains murky.

So what advice are we giving to tenants, investors and occupants who own? Allow me to categorize each.

tenants

Faced with a lease expiration at the end of this year, we recently recommended a client of ours renew for a short period of time, just six months, to gauge the market trajectory.

We’ve been watching what property has become available for several months. His options to relocate were limited and we’d even created a Plan B to stay put if we didn’t see some loosening in the market.

Lo and behold, we noticed a trick of new buildings hitting the market in October. Now it’s running about three a week. If you’re looking for space, this is a vast improvement vs. six months ago when we were lucky to see one every three weeks.

Another interesting metric is the asking rates have declined. Gone are the days when a newly available property was swept up before it was widely marketed. Every new deal was a new high. Not anymore.

Our advice centers around the belief in a future market softening. Tenants are becoming valuable again, especially if they pay on time and are easy on the building.

What’s causing the increase in supply? Some businesses faced with the new rent structure are headed out of state or out of business. What’s left in their wake are vacancies.

Investors

We see two sets of motivations these days: to defer taxes or not. Unless motivated by tax reasons, it might be wise to put your money in short-term treasuries—say, two years—and wait for the right opportunity to come along.

Institutional capital is largely sidelined and occupants are priced out. Private investors rule. If rents are softening in the face of rising interest rates, values ​​can only decline. Will there be better deals in mid-2023 vs. today? Our opinion is yes.

Certainly, if your investment is dictated by tax-deferred timeframes, you either transact or pay the capital gains taxes. But remember, the impetus of those buys was a sale. Our sense is they’ll be fewer equity sales as values ​​have declined or the market’s evaporated, leading to fewer tax-fueled purchases.

Occupants who own

We saw a voracious appetite from institutional capital targeting properties. Their pitch was a sky-high purchase price in return for a leaseback of two-10 years. This activity peaked in June.

With the uncertainty of recession, inflation and rising rates, these deals weren’t as attractive.

With more lease deals hitting, our prediction is some of these owners will need to sell, especially if faced with a refinance bullet or a shortage of dollars necessary to refurbish the building into rent-ready condition.

Once again, patience is key.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.

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Rotman grad pursues social impact in real estate development

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If anyone had told Fatima Saya four years ago that she’d work in real estate development after completing her MBA at the Rotman School of Management, she probably wouldn’t have believed them.

With a passion for building community, creating social and global impact and advancing equity, diversity and inclusion (EDI) wherever she goes, Saya was recognized in her second year for creating and leading a diversity education program for the incoming MBA class in partnership with the school’s Office of Student Engagement and her peers.

Today, she is a senior manager of social impact at The Daniels Corporation, a Toronto-based real estate development company – and says the link between the two is not as unusual as it might initially sound.

“Without cultural, economic or social infrastructure, buildings are just buildings,” says Saya. “State-of-the-art construction is a big part of what we do at Daniels, but what we’re really focused on is building inclusive and sustainable communities through real estate development.”

Saya’s work falls under three main categories: social infrastructure development, local economic development and community engagement. One of the largest projects she’s involved in is the Regent Park revitalization project, where Daniels has been the development partner for its first three phases since 2006.

Since the project began, the physical infrastructure in Regent Park has been completely transformed for its residents, including the building of a new youth centre, community arts and culture hub and award-winning athletic facilities. The revitalization project has also helped to connect more than 1,600 people with employment opportunities through the new Regent Park Employment Centre.

“No two days are the same in my world,” says Saya. “One day, I might meet with the employment community group in Regent Park about creating new jobs for residents, then I might meet with Artscape on creative placemaking that we’re trying to bring to one of the communities.”

The Daniels Corporation has been a development partner for three phases of the Regent Park revitalization project (photo by Steve Russell/Toronto Star via Getty Images)

A typical afternoon involves meeting with the College of Carpenters and Allied Trades and the YMCA about CRAFT, the youth employment program Daniels runs in Regent Park and Scarborough. And to cap off the day, an internal meeting on EDI – another key portfolio in her role.

“I’m consistently juggling about two dozen projects, and they’re all different,” says Saya. “I became used to that at Rotman, and it has also been a common thread throughout my academic experience and now at work – I’m always looking for that multidisciplinary approach.”

After working in the education sector in Montreal following her undergraduate studies, Saya recalls noticing a management gap in the non-profit sector. Coming from an international development and political science background, she figured business school would be largely uncharted territory, but took the plunge anyway.

“I wanted to gain those management skills and challenge myself in a new way,” she says. “I like to pull from different disciplines when seeking out solutions to problems, so I was drawn to how inherently interdisciplinary the MBA program was. That’s also why I pursued a dual-degree program, completing my master of global affairs degree from the Munk School of Global Affairs [& Public Policy] at the same time.”

Following her graduation, Saya searched for a role that would allow her to apply her MBA skills in the social sector, with a focus on EDI. In the meantime, she worked as a freelance consultant using the skills she gained from working at NeXus Consulting Group during her second year. NeXus is an in-house consulting firm comprising Rotman MBA students and not-for-profit organizations, which merged with the Impact Consulting Group at Rotman in 2022.

“I was looking for something very specific, and I was comfortable with the reality that it was going to take some time to find whatever that is,” she says.

Now in her ideal role, she says the best part is getting to use her diverse skills on projects that impact thousands of people in the Greater Toronto Area.

“At the end of the day, real estate development is inevitable as we grow rapidly as a city and a country,” says Saya. “It gives me hope that more people are embracing that development can happen in ways that build the social, cultural and economic infrastructure of our cities and our communities.”

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