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OUR COMPANY AFFILIATES

CBRE GROUP

CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2019 revenues of $23.9 billion and more than 100,000 employees (excluding affiliate offices). CBRE has been included on the Fortune 500 since 2008, ranking #128 in 2020. It also has been voted the industry’s top brand by the Lipsey Company for 19 consecutive years, and has been named one of Fortune’s “Most Admired Companies” for eight years in a row, including being ranked number one in the real estate sector in 2020, for the second consecutive year. Its shares trade on the New York Stock Exchange under the symbol “CBRE.”

CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

INVESTMENT SERVICES

CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers with $114.5 billion in assets under management.

Built up over more than 40 years, our unparalleled platform is focused on real assets, giving our institutional clients access to real estate and infrastructure in the Americas, Europe and Asia Pacific. Our clients benefit from a complete range of investment solutions including equity and debt, direct and indirect, and listed and unlisted strategies.

Trammell Crow Company, founded in Dallas, Texas in 1948, is one of the nation’s oldest and most prolific developers of, and investors in, commercial real estate.The CBRE Global Investors and Trammell Crow Company platforms make up the Real Estate Investments division of CBRE Group.

The Real Estate Investments division is led by
Mike Lafitte, Global CEO, Real Estate Investments.

BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

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Andrew Davey, Fund Manager & Emma Huepfl, Managing Director Europe Credit Strategies

Attractive characteristics, compelling opportunities

Andrew Davey

Fund Manager

Emma Huepfl

Managing Director, Europe Credit Strategies

Views 407 times

A favourable backdrop for real estate alternatives to fixed income

Click here to read the full paper including graphs: Attractive Characteristics, compelling opportunities 

 

Demand for yield remains high

Local Government Pension Scheme investors continue to grapple with increasing member maturity, making the search for greater investment income ever more pressing.

The continuing low yield environment has fuelled demand for alternative investment opportunities that offer a return premium without sacrificing the required risk characteristics. However, many investors are not aware that there are real estate solutions which can meet both of these needs.

Real estate long income and real estate credit can provide the yield premium that LGPS investors require, while retaining many of the attractive features of fixed income, including long-term, predictable, inflation-linked income. But successful investment and portfolio management relies on specialist understanding of real estate markets and expert understanding of property-specific fundamentals.

Long-term, inflation-linked income

For investors searching for attractive risk-adjusted returns driven by inflation-hedged, stable cash flows over the long term, real estate long income is an attractive solution. Broadly speaking, real estate long income refers to properties that are leased to tenants for between 15 and 150 years. Depending upon the structure chosen, the investor or tenant retains the property at the end of the lease. Depending upon the specific investment, risk mitigation is gained from recourse to tenants with superior credit strength, and/or ownership of property underwritten on the basis of a lower rent than that achievable on the open market, or having been bought for an amount lower than the potential sale proceeds achievable on the open market. With returns driven by long-term cash flows and index-linked rental uplifts, the strategy also offers the ability to match investors’ liabilities. Compared with fixed income, real estate long income has historically delivered attractive risk-adjusted returns, lower volatility and a consistent illiquidity premium.

Real estate credit also offers attractive income benefits, favourable risk-adjusted returns and portfolio diversification. In simple terms, real estate credit refers to private loans, or mortgages, secured against commercial real estate and used for either acquisition financing, or refinancing of existing loans. It has historically generated higher yields than investment-grade corporate debt, while diversifying away from directly held real estate or traditional liquid investments like corporate credit. Real estate credit can also be structured to offer an explicit link to inflation through floating rate loans hedged by way of an interest rate cap.

Protected by underlying asset quality

Real estate long income also offers a viable alternative to fixed income in terms of credit quality. The credit strength of a long income investment is determined by the level of collateral provided by each property or the financial strength of the tenant counterparty. As the type and level of credit quality can vary, the attractiveness of the property is extremely important. If a tenant defaults, the recourse for investors is to retain the underlying interest in the property, making the property’s value an enduring source of security. Real estate credit offers the benefits of contractual income streams generated via lease payments from property tenants, with additional downside protection provided by the asset’s collateral. As loans are typically secured against the asset and the borrower is not personally liable, lenders need to ensure there is a good understanding of the underlying property in the event of a default. A thorough grasp of property fundamentals and how they behave across the cycle is essential to correctly assessing the risk of both these investments.

Identifying opportunities and value

CBRE Global Investors’ breadth and depth of expertise in real estate allows us to find and access compelling opportunities in real estate long income and real estate credit as they arise. We have an extensive view of the market, a heightened understanding of the risks currently at play, the information needed to identify pockets of good value, and, crucially, access to deal flow in a tight market.

With the pandemic expected to last into 2021, we are carefully monitoring some key opportunities. Demand for liquidity and credit is rising as risk appetite from traditional lenders has lowered. This leaves an opening for non-bank lenders to step in and provide flexibility and well-structured financing to borrowers at attractive prices.

We are also watching closely as pressure increases on investment-grade corporates. With volatility amplified by the pandemic, downgrades to sub-investment grade could rise. It is shortsighted to view a long-term lease with an investment-grade corporate tenant as adequate protection. In our view, the quality and attractiveness of the underlying asset is always paramount.

The compelling case for LGPS funds

Against a background of uncertainty, both real estate long income and real estate credit offer attractive characteristics as investors look to diversify investment risk towards income-oriented asset classes. With both of these investment opportunities, LGPS funds can benefit from:

  • Higher yield than fixed income
  • Long-term, stable cash flow
  • Inflation-linked income that enables liability matching
  • Attractive risk profile, supported by high quality real estate fundamentals.