Viewpoint – Looking ahead to 2017 – “Prediction is very difficult, especially if it’s about the future”*
After the events of 2016, including the UK’s decision to leave the European Union (‘Brexit’) and the election of Donald Trump as the next US President, we believe it would be foolish to make any predictions about 2017 – except perhaps that it will likely be another ‘bumpy’ year with potentially some unwelcome surprises.
The consensus of economic forecasters is that 2017 economic growth will be approximately 3% globally, 2.2% in the US, 1.5% in the Eurozone and 1.25% in the UK. Asia should continue to grow strongly, led by China.
But political events could blow these forecasts materially off course. These including the global trade and other policies of the new US administration, the forthcoming Brexit negotiations and key elections in Germany, France and Holland. All these, per 2016, have the potential to unsettle markets and investors. Adding to the mix –ongoing global geopolitical issues, the prospect for higher US interest rates, and unresolved fiscal issues and deficits means 90 North naturally remains very cautious.
We completed six significant transactions in 2016 taking our total transactions to twenty-five and our AUM to £1Billion/$1.5Billion. 90 North’s core focus remains principally on acquiring new or remodelled properties, preferably with strong environmental accreditation and in strong locations. Tenants across the portfolio in the US, UK and Europe are typically well known brands (including Siemens, Continental, the US Government, VW, Lenovo, Saint-Gobain, General Electric) but always financially very strong. We also prefer longer leases with fixed rental uplifts but also having assessed a tenant’s commitment to the location. We also like properties with ‘value triggers’ by having physical extension possibilities or leased at a price point that encourages the tenant to invest and intensify its use of a site.
For 2017, due to our natural risk aversion, we continue to progress investment opportunities that fulfil the same criteria. However, we are also reviewing properties which demonstrably have a broader value-add and opportunistic character. For these 90 North can use its asset management teams in London and Chicago to lever additional risk-adjusted returns for investors. However, we are mindful about the considerable competition for these assets, which has driven entry pricing to unrealistic levels in markets that remain tight on stock.
For more core/+ assets, our strategy, depending on the wants & needs or our partners, will also include seeking longer term bank financing – up to 10 years with amortisation. There is a simple reason for this – whilst the global ‘hunt for yield’ seems unrelenting, good quality opportunities will likely remain scarce. It is also expensive to trade property, and consequently we may choose to have the option to hold assets for the longer term (albeit with the benefit of a lower cash yield). Where disposals of certain assets would result in profits that meet or exceed business plans, 90 North will work with our partners examining the option of a sale versus, say, a refinance strategy.
Whatever the investment climate, 90 North is focused on further growth in 2017 – both geographically and also by adding additional skillsets. We are currently reviewing opportunities in Asia and, elsewhere, more early stage property development where risk adjusted returns are appropriate.
90 North Partners coinvest in all transactions and therefore we act in a true partnership with investors – caring about even microscopic details of transactions throughout their lifespan on the basis ‘if you look after the pennies the pounds will look after themselves’.
We hope we can partner with you in 2017 on a new acquisition or alternatively an existing asset that may require a confidential review and new approach to drive its performance.
Whatever the opportunity, we look forward to seeing you shortly and wish you, your colleagues and families a peaceful and prosperous 2017.
*Niels Bohr – Danish Physics Nobel Laureate