Equally puzzling is that while recognizing the distinction between core, core plus, added value and development investments, there is a perception that the first two classifications require little to no input during the hold period. If an asset manager is doing their job properly, there should be constant tenant dialogue and interaction with on-the-ground property managers.
This is more important than ever with the office sector, with tenant satisfaction or lack thereof leading to decisions to downsize their occupation in one building or another. With Shariah compliant real estate having the additional consideration of managing the compliance of tenant subleases, it should have even more focus.
Studies over the years have shown the benefit of having real estate in your investment portfolio during times of high inflation. Sounds easy, but of course unless the leases have annual inflation linked rent increases, which is typical only in Continental Europe, it will be the work of the asset manager to secure these rent increases at lease renewals. We are back to tenant satisfaction again, as well as working with both the incumbent occupier and potential new tenants to secure the best risk-adjusted increase in income.
This can be seen most clearly in residential assets, whether that be in the multifamily sector which many Islamic investors are very familiar with, or alternatives such as student accommodation or care homes. The short leases on such assets are both a positive and a negative, for while rents can be more quickly adjusted up compared to say a 20-year office lease, by definition, occupancy can quickly fall if the property no longer suits the needs of the resident. Throw in operating costs, which fall on the landlord with student accommodation and you can see the pressure that a doubling of energy costs would have, thankfully about to be offset with 10%-plus rent increases for the forthcoming academic year.
Talking of pressure, while some may not admit it, the reality is that real estate values are currently down on almost all real estate assets and it is clear for all to see that interest/profit rates are still rising. Combined with perhaps wobbly tenants and it can certainly be at the very best…challenging. This is where asset managers come into their own, fighting to defend the current position and working hard to improve it by whatever means.
So, let’s hear it for the asset managers, the unsung heroes of real estate investment, and here at 90 North we will be pushing to promote their great work even more.