Opportunistic real estate may seem flawed in one way or another. However, once the property is purchased and some money is invested, it can increase in value. In a recent JLL article, Tim Graham, the firm’s global lead for International and Strategic Capital, said that investor interest – and investor money – is increasingly being directed toward opportunistic purchases.
Here are some examples of how this plays out on the institutional investment side:
- Crow Holdings has raised $3.7 billion in the U.S. for its value-add real estate strategy in the U.S.
- Pennybacker Capital’s sixth U.S. value-add real estate fund closed at $1.6 billion and includes allocations from the Texas Permanent School Fund and the New York State Teachers’ Retirement System.
- Revelop’s Swedish value-add fund has raised over SEK 2.4 billion (US$231 million).
- According to the annual ANREV/INREV/PREA survey on investment intentions, 56% of respondents expressed a preference for value creation strategies.
“Investors have focused on allocating capital to strategies that promise high risk-adjusted returns as return requirements have increased due to higher borrowing costs,” Graham explained.
The next question is where exactly this largesse will be deployed. Graham said the deployment of capital will depend on the macroeconomics and market dynamics, with interest rates influencing most markets.
However, the article noted that the office sector, facing ever-changing tenant expectations and trying to adapt to hybrid working, could be ideal for a value creation strategy.
“The average quality of assets is much better than it was a decade ago and the discrepancy between newly valued prime office assets in cities such as London or Paris and the spend required to renovate them may have been exaggerated, which could create opportunities in the short term,” said Cameron Ramsey, senior director, capital markets, EMEA & UK research & strategy at JLL, in the article.
Ramsey said value-add office transactions would likely be limited to the €50 million to €100 million ($108 million) price range. Anything above that could bring with it higher exit risk inherent in larger assets.
The article noted that value-add capital is likely to be deployed as core buyers return to the market, so “all eyes are on how core capital behaves,” the article said.
