Author Archives: Clara Bailey

Viewpoint – Euro vision

Currency is not always the first consideration when selecting real estate investment strategies, but when the euro reaches parity with the US dollar for the first time in 20 years, it warrants a closer look, particularly when the challenges of rising energy costs, wider inflation and increasing benchmark interest rates are impacting all western markets.

I do not pretend to be a currency expert, but I am told by those in the know that currency exchange rates are all about current and anticipated interest rates, with capital swirling round the world looking for the best returns. With a European base rate of just 0.5%, this sets the tone for low returns and so a weak euro, but it also provides an opportunity for real estate investors.

The benchmark euro three-year interest rate swap is currently just a smidge over 2%, compared with 3.4% for the US dollar and 3.7% for the pound sterling. For the levered Islamic investor, who may also be US dollar-denominated, this provides a double win. Bolt on the ability to lock in a 5% appreciation of the euro against the US dollar in three years’ time and it looks even better. But let’s not forget the real estate markets themselves, and aren’t we all headed for recession?

Focusing on the office market as the largest component of the investment market, recent research from Savills paints a positive picture. Office lettings continue a strong recovery and are projected to reach the five-year average this year. As you’d imagine, with hybrid working having become well established, demand for flexible office space has seen considerable growth, as well as a continued flight to quality. With environmental legislation and tenant expectations rising, many markets are seeing both strong rental growth and rising vacancy rates, as secondary stock fails to find a home.

We at 90 North have already seen the repricing of assets in Europe, which we believe will become more established over the next quarter. Adding in typically inflation-linked annual rent reviews on leases, and a long-leased property to a secure tenant able to weather some economic uncertainty, might look like a smart move come exit in three to five years’ time.

My customary search of the IFN database could not identify any recent European real estate activity among Islamic investors, but I have a hunch that that is about to change.

Written by Philip Churchill, first published in Islamic Finance news Volume 19, Issue 38 dated 21st September 2022. 

90 North supports RNLI 911 Challenge

We are delighted to be one of the sponsors for the RNLI (Royal National Lifeboat Institution) 911 Challenge 2022.

Their challenge is to drive anti-clockwise around the whole of Ireland both North & South, visiting all 75 RNLI Lifeboat Stations (past & present) and we’ve sponsored their visit to Enniskillen.

They will be travelling over 2,000 miles within 20 days!

We are delighted that we could support them in this great challenge for a wonderful cause.

Their website with further details is https://www.rnli-911challenge.co.uk or if you’d like to follow their progress via Instagram, they are “rnli_911_challenge”.

Viewpoint – Onwards and upwards

It has been great to see the university graduation photos across LinkedIn and social media over the last few weeks. Joy for a job well done, and justified optimism for the future. Hoping not to detract from the endeavours of so many students, we feel the same here at 90 North, having recently closed our Academy Investment Fund of UK student accommodation, in association with Rasameel in Kuwait.

I can still just about remember my university finals, putting every last ounce of time and energy into achieving the best outcome. For while the press releases make it sound all too easy, those who have been involved with closing a fund will know the multitude of challenges, both anticipated and not, that hit you and for which overcoming them makes the success all the sweeter.

And for optimism for the future, I fall back on the demographic fundamentals and international dynamic of student accommodation in the UK. The number of young adults of university age is set to increase by 25% by 2030, compared with just 2% for EU countries. I would suggest that this alone should provide good reason to at least take a look at student accommodation as an investment strategy, but there is more.

The Universities and Colleges Admissions Service or UCAS, which operates the application process for universities in the UK, is projecting a 46% increase in applications from international students over the next five years. This is not some wildly optimistic judgment call, but a continuation of the trend. While China still dominates, its growth is starting to slow slightly, with India and other nations accelerating. And for the universities themselves, such international students paying full fees are a godsend to compensate for the domestic students for which they at best break even.

We are certainly not alone in favoring student accommodation as an investment strategy, with Tadhamon Capital having a very successful development program in the UK, and GFH, also from Bahrain, selecting the US and recently announcing a US$300 million portfolio acquisition with its local asset manager.

For while the world wrestles with inflation, interest rates, COVID-19 and conflicts, a multitude of students across the globe are dreaming of their graduation day and the future success they can build upon it. So, while the universities themselves take a well deserved summer break, we and many others will be pushing on with acquisition opportunities in this sector. Onwards and upwards.

Written by Philip Churchill, first published in Islamic Finance news Volume 19, Issue 29 dated 20th July 2022. 

Press Release – Academy Investment Fund Closed

90 North and Rasameel are delighted to announce the first closing of the Academy Investment Fund of student accommodation across the United Kingdom.

With a combined value of £90,000,000, the five assets are located in prime student cities servicing the best, highly ranked and well-known universities across England, Scotland and Wales comprising:

  • Exeter One, Exeter.
  • The Union, Royal Leamington Spa.
  • Goods Corner, Edinburgh.
  • Dover Street, Leicester.
  • City Heights, Cardiff.

Totalling 795 rooms of both ensuite and studio accommodation, the portfolio is currently 100% let for Academic Year (“AY”) 2021/2022, and thus far more than 90% let for the forthcoming AY 2022/2023.

Philip Churchill, Founder and Managing Partner at 90 North commented, “It’s very pleasing to see lettings performance of this portfolio going from strength to strength, which we believe shows the robustness of our proprietary top-down analysis for target cities, combined with the detailed bottom-up investigation to select the best opportunities.”

Mohammad Tareq Al-Thaqeb, Senior Vice President at Rasameel said, “The demographic fundamentals and international dynamics of UK student accommodation are extremely compelling, with a rapidly growing number of young adults in the UK and a projected near 50% increase in applications from international students over the next 5 years.”

With a strong pipeline of opportunities currently under consideration, we look forward to announcing further acquisitions in due course.

Ed Lowe completes Three Peaks Challenge

Congratulations to our Investment Analyst, Ed Lowe who over the weekend completed the Three Peaks Challenge.

Along with other volunteers, Ed climbed the UK’s three highest peaks – Ben Nevis, Scafell Pike and Snowdon in 23 hours 15 minutes.

The group have raised over £5,000 for Oxford & District Mencap, a charity which provides much needed support for people with learning disabilities and vital respite for their families and carers.

Well done to everyone who took part!

Press Release – Sval Energy sign new Stavanger lease

90 North is delighted to announce the completion of a new 10-year lease to Sval Energy AS, who have taken all 10,358 sq.m. of an office property on Stavanger’s coast, the capital of the oil and gas industry in Norway.

The lease coincided with Sval Energy’s $1.1 billion acquisition of the Norwegian business of Spirit Energy, the largest transaction in the North Sea since 2019.

Quentin Warner-Smith, Senior Asset Manager at 90 North commented, “We look forward to working with Sval Energy, who have shown a long-term commitment to the property, with further property improvements to be undertaken and all their employees consolidating into our property.”

Viewpoint – More from multifamily?

Investment into US multifamily properties has long been a favourite of Islamic investors, and for good reason it would seem, with Newmark reporting a 20% total return for this sector in the 12 months to the end of March, driven by valuation increases.

While it is tempting to suggest that such growth cannot continue and will start to reduce, and indeed should the US economy hit a rough patch then residential of all sorts will no doubt be impacted, there are signs that this may not occur.

With recent US interest rate increases, for the first time in recent years the average monthly mortgage payment is higher than the average monthly rental payment. For the would-be buyer considering whether to do so or continue renting, this will start to have an impact, as will the ever-increasing deposit needed as the price of homes to purchase continues its ascent.

The Economist recently conducted some fascinating research into what is driving local changes in house prices, providing more detail in its analysis than a perception that everyone in the US has moved to Florida and Texas.

The Economist’s findings were that population density was a major factor in determining price changes, with occupiers seeking less crowding and more space, particularly as hybrid working becomes the new norm. But this was largely seen in city dwellers favouring the suburbs rather than the rural existence beyond, with the relative ease of their commute into town two or three times a week being factored in.

And weather was also important, with avoiding a freezing winter being more important than maxing out on the summer temperature. In short, hybrid working is encouraging everyone to seek a better quality of life, but this is not necessarily a relocation south and east, with the Pacific coast states seeing strong price increases as well.

With US$63 billion of multifamily transactions between January and March this year, Newmark reported that this is the highest first quarter figure for more than 20 years, suggesting that investors are still feeling the love for the sector, even with interest rate increases. For while Qatar First Bank recently exited its Baltimore residential building, little doubt having performed very well over its five years of ownership, there are plenty more looking to enter or build their exposure to this sector.

My advice is to keep an open mind with respect to location; the US (to state the obvious) is a huge country, and my recent visit to Los Angeles confirmed that it is not a ghost town.

Written by Philip Churchill, first published in Islamic Finance news Volume 19, Issue 24 dated 15th June 2022. 

Press Release – 90 North and Rasameel acquire prime student accommodation in Cardiff

90 North Real Estate Partners LLP (“90 North”), in partnership with Rasameel Investment Company (“Rasameel”) has acquired City Heights, a 146 bed student accommodation investment in Cardiff for £19,400,000, a 5.75% net initial yield, as part of a Shari’ah compliant investment.

Built in 2019, the property provides very attractive on-site amenities, including an outdoor roof terrace, common room with games area, on-site gym, study space, laundry room and bicycle storage. As well as being the capital city of Wales, Cardiff is a Russell Group university city and is home to more than 55,000 full time students.

Philip Churchill, Founder and Managing Partner, 90 North commented, “We’ve been targeting an acquisition in Cardiff for a while now, attracted by the relatively low provision of purpose built student accommodation and the city’s international appeal, with more than 20% of the students being from outside the UK. In City Heights, we have a market leading studio scheme, with very generous room sizes and a location that provides both ease of access to the universities and the distractions of the city itself.”

With more than 3,000 student beds currently under management, 90 North has a strong pipeline of further acquisitions in the student accommodation sector.

Mohammad Al-Thaqeb, SVP, Rasameel commented “We are very pleased to be expanding our presence in the UK with further real estate acquisitions by acquiring another great PBSA property under the existing Academy Investment Programme that we established in 2017 in partnership with 90 North. City Heights is a great addition into our mandate and in-line with the investment criteria under the Academy Programme and our large-base investors’ aspirations.”

 

Viewpoint – Have you heard about self-fulfilment centres?

Discussing UK retail parks with investors can be difficult. Firstly, there is trying to explain what they are. Describing them as retail warehousing suggests logistics units with a row of vans outside, while “A collection of large units around a car park” doesn’t paint an attractive image. Could it be as simple as: “It’s where those not in cities shop?”

But then there’s the typical reaction that I’m clearly delusional to suggest that anything in retail could make an attractive investment choice. Retail remains a dirty word. Of course, I understand that many will have lost money in this sector, but that doesn’t seem to stop people wading back into the stock market when they see growth on the horizon. Could it be worth another look?

From an Islamic perspective, retail parks tend to work well. Devoid of the butchers, off-licences and gambling shops of the typical high street provides a helpful starting point. “But surely all retail of devoid of tenants?” Let’s talk about occupancy.

There is no escaping the volume of retailers whether on retail parks, high street, shopping malls or all of the above, that went into administration during the pandemic. However, I see this as an acceleration of the inevitable decline of outdated business models. Plenty of retailers have adapted and are indeed thriving in an online world.

Online shopping has made us consumers impatient, but this often means that “click and collect” provides the easiest way to satisfy a need, whether that be a box of screws, a new TV or the weekly food shop. With the convenience of ample parking, and ability to “pop in” and pick up some new car bulbs, the dog’s food or browse new sofa options, retail parks work.

But what are the facts? From an historic low of sub-5% vacancy at the end of 2017, respected sector analyst Trevor Wood Associates reports that vacancy reached the mid-8%s by June last year, but has since started to fall. We’re seeing this ourselves at 90 North, with the retail park we manage outside Birmingham being back up to full occupancy, with active tenant management to extend leases and bring new tenants in.

When assessing opportunities we look for a mix of retailer types. Firstly, home essentials and electricals, with B&Q, Currys PC World, DFS and Halfords providing a typical line-up. Leisure operators in the broadest sense have been a growing aspect of retail parks, with McDonald’s and Costa Coffee being joined by gyms, kids soft-play and golf simulators. But it’s the discount retailers that are in the ascendency.

With rampant inflation and a cost of living crisis, UK households are needing to save money. Second only to home improvement store B&Q, variety retailer B&M now has the most area let on retail parks in the UK, with more than six million square feet. Their 8% growth in space during 2021, is similarly matched by Home Bargains and The Range, each with more than three million square feet. These are big operations, and given the range of what they sell do require an analysis with respect to haram products.

But still there’s a nagging doubt with many that it’s all about online these days. Well, latest data from the Office for National Statistics shows that online sales declined (yes declined) again in March this year to 26% of all retail sales, down from a high of 37% in February 2021. As the pandemic unwinds we’re not far off being back to the pre-COVID 23% level for online sales.

But still we have the troublesome word “retail”. Taking inspiration from Amazon’s fulfilment centres, I would like to suggest a rebrand for the humble retail park. Welcome to the exciting and rapidly growing sector of “self-fulfilment centres”. Avoiding the lengthy 24 hours delay to receive their items, consumers select what they wish online, drop into their local centre on the way to work or after dropping the kids at school, collect their reserved items and other essentials, and with the savings made at B&M and The Range treat themselves to a coffee and a slice of cake. Truly “self-fulfilment”. You heard it here first!

Written by Philip Churchill, first published in Islamic Finance news Volume 19, Issue 21 dated 25th May 2022. 

Viewpoint – Kicking the bricks

With the world continuing to peel back their travel restrictions, the prospect of international travel to both meet investors and for them to travel to inspect properties is hugely exciting and positive for the real estate investment management industry.

While video calls and video tours were hugely efficient tools, it is time to ‘press the fresh’ and ‘kick the bricks’ and open up new opportunities and strategies for consideration.

Over the last two weeks, we have welcomed a number of visitors from the Middle East and Asia to 90 North London, and while the weather was not as spring like as many had hoped, we were delighted to have them back in our offices.

Just as I believe that hybrid working between the office and home will remain a lasting legacy, I certainly do not see a return to the same volume of travel, particularly when you look into the flight costs these days, but it is great to have that combination of in-person on on-screen.

And while much of the global economy is becoming increasingly local, as political and pandemic concerns remain and in many cases grow, real estate investment management, whether Islamic or not, remains resolutely international.

It is great to see Investcorp making office acquisitions in both Milan and Rome, continuing to expand their portfolio across the UK and Continental Europe. Meanwhile, we at 90 North are seeing an expanding geographic interest as the pursuit of yield shows no signs of slowing.

With my travels over the coming weeks taking me to the US, Middle East and Asia, I cannot wait to get out there, although the memories of jet lag are less appealing. Safe travels!

Written by Philip Churchill, first published in Islamic Finance news Volume 19, Issue 15 dated 13th April 2022.