LONDON: Distress and investors’ extreme risk aversion drive rich European property opportunity set

Sep 26, 2012

  • Though success now requires operational expertise in addition to financial engineering skill

London, 26 September 2012: A new report* from J.P. Morgan Asset Management has highlighted how real estate market conditions, the macro economy, capital scarcity and apprehensive investors have created a new profile and vast opportunity set for European property investment. However, amidst a macro environment of anaemic growth and little debt, success now favours experienced investors with both financial and operational expertise.

The economic turmoil in Europe over the last few years has resulted in:

Extreme Risk Aversion

Uncertainty at the macro level has led to a state of extreme risk aversion on the part of investors. As a result, there is now a whole swathe of institutional assets in good locations which are being entirely mispriced as secondary.

Assets in Suspended Animation

The latest evidence from the banking sector shows that the major banks are finally becoming more realistic about valuation and pricing. This new realism is now creating the basis for a new wave of disposals. These include assets which have, to all intents and purposes, been in suspended animation for the last three to four years as a result of the unwillingness of either the owner or lender to invest further. This stock includes good quality assets in strong locations whose minor impairments are capable of being rectified by an injection of capital and/or active management.

Assets v Capital

The report estimates that the investment universe for opportunistic investors comprises €250 billion of real assets that will be placed on the market over the next three years. This contrasts with €60 billion of investment capital waiting to enter the market, a ratio of 4:1 across the region. However, the balance between investment stock and available capital varies widely, with a ratio of 6:1 in the UK but well over 20:1 in Spain, Italy and the Netherlands.

Peter Reilly, Head of Real Estate Europe in J.P. Morgan Asset Management's Global Real Assets Group, said: "There is now a very strong case for investors to be looking at the European market in order to take advantage of the mispricing of risk and the massive deleveraging that will take place in the next few years."

Joe Valente, Head of Research and Strategy for the group, added: "A new era in opportunistic investment is opening up in Europe. This time, returns will not be driven by financial engineering, but by the ability of the manager to add value and de-risk assets."

* For an advance copy of the research paper, Opportunity seized, opportunity missed – The case for opportunistic real estate investment in Europe, please contact the press office team at J.P. Morgan Asset Management.

For further information please contact:
Media relations: Sarah Godfrey
Telephone: 020 7742 5950

Lansons Communications
Lucy Banks
Telephone: 020 7294 3689

Notes to Editors

About J.P. Morgan Asset Management

J.P. Morgan Asset Management is part of JPMorgan Chase & Co. and is a global asset management leader providing world-class investment solutions to clients. With US$1.3 trillion in assets under management (the Asset Management client funds of JP Morgan Chase & Co. as at 30 June 2012) and offices in 41 locations around the world, J.P. Morgan Asset Management offers global coverage with a strong local market presence, and leadership positions in most asset classes.

About J.P. Morgan Asset Management – Global Real Assets

J.P. Morgan Asset Management – Global Real Assets has approximately $62.8 billion in assets under management and more than 400 professionals in the U.S., Europe and Asia, as of June 30, 2012. With a 40-plus-year history of successful investing, J.P. Morgan Asset Management – Global Real Assets' broad capabilities provide many of the world's most sophisticated investors with a global platform of real estate, infrastructure, maritime/transport and energy strategies driven by local investment talent with disciplined investment processes consistently implemented across asset types and regions.

J.P. Morgan Asset Management is a trading name of J.P. Morgan Asset Management Marketing Limited which has issued this material in the United Kingdom and which is authorised and regulated by the Financial Services Authority. Registered in England No. 288553. Registered office: 25 Bank Street, Canary Wharf, London E14 5JP.

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