Never compromise on quality – the quality will remain long after the price is forgotten


According to the Bloomberg Barclays Global Aggregate Index, the total value of negative yielding corporate and sovereign debt jumped to $11.6 trillion at the end of September 2016. With a total Index value of $48.0 trillion, approximately 25% of the Index is invested in the certainty of losing money if held to maturity.

The motivation of such behaviour may be explained by Henry Royce’s famous quote that “The quality will remain long after the price is forgotten”, for whilst the inclination to buy a Rolls Royce car is very different to a bond portfolio, the same maxim applies of not wanting to make risky acquisitions, particularly with so much global uncertainty.

And so it is for real estate as well, but thankfully not having to go the extreme of negative yields. As a Founder of 90 North Real Estate Partners I am delighted that we have just advised on our 25th transaction, the $100+ million acquisition by Kamco Investment Company of General Electric’s brand new Global Operations Centre in Cincinnati USA. The property is leased for 15-years and will provide investors with a ‘through the mailbox’ current yield in excess of 6.0%, underpinned by the strong fundamentals of the location, property, lease and tenant.

Such current yield is frankly lower than we’ve previously been able to achieve, but with the global hunt for yield 90 North and our investors would rather compromise, albeit modestly, on the yield that the quality of the real estate investment itself.

Whilst our portfolio of transactions has now reached in excess of $1.5 billion , including £340 million of acquisitions so far this year across the USA, UK and Europe, our underwriting of the latest transactions is as relentless and focused as the first transaction we advised on. This near microscopic approach is backed up by 90 North Partners’ personal co-investment in each and every acquisition, ensuring alignment of interests.

Global markets are very challenging and frankly difficult to read at the moment, even by the best known economists. Should all markets take a turn for the worse, quality assets will provide the best downside protection whether that’s a sovereign bond or a blue chip property. Our focus will remain on high quality, long leased assets contracted to financially strong tenants. There is enough of a premium over bond rates not to have to chase dreams by taking unnecessary risk.

Speaking of dreams, a Rolls Royce isn’t for me – I prefer a Bentley!