The current moment marks a very opportune time for us and our clients, with significant earning opportunities amid the dislocations caused by both the COVID-19 pandemic and Brexit aftermath.
A combination of low asset prices, uncertainty, low interest rates, depressed valuations and distressed sellers have come together for Berkeley Assets and indeed other private equity (PE) firms. With vast cash reserves, once a drag on returns, now becoming an immensely valuable tool. The landscape has changed in our favor, and there is no doubt that PE will own a larger share of the world’s GDP after COVID-19, than before.
PE can move fast to acquire, but remain patient on disposal. As the need for liquidity increases, private capital is available, with debt purchasing already as low as 60% of face value. CalPERS (Californian Public Employees Retirement System) the largest public pension in the US, has recently raised its exposure of private credit and use of leverage, with a recent deployment of $64 billion away from the volatility in public markets. CalPERS, is ramping up its exposure in private equity as it is one of the few asset classes that can outperform the existing low yield and low growth environment.
Any crisis evokes increased sell-offs; the first call to action is to select potential winners among the more obvious losers. In 2020 it is clear that tourism and transport are the victims, but we still haven’t seen the full fallout of this pandemic. Regardless of how tempting an opportunity may appear, our clients still prefer Berkeley Assets to make more secure asset purchases within a conservative and resilient sector like real estate.
UK real estate has always been desirable as an asset for the global community, but much of it was focused around expensive ’trophy asset’ London holdings. COVID-19 ushered in more potential for remote working, thus making commute distances a lesser part of the decision-making buying process. As such, leafy, picturesque suburbs will only gain in appeal compared to their city dwelling counterparts.
In light of further expected rises in unemployment, we remain resilient on our rationale for affordable housing and assisted living developments, as one of our key value-add strategies. Assisted living and affordable housing projects provide yield protection, both capital and income, due to the ease of letting and ability to exit, especially in the backdrop of the market saturation for high end developments. In this economic environment, these factors are key for us and our clients.
Regardless of the economic conditions we face, whether that be adverse or fortuitous, it is certainly not the time to lower our stern and ethical due diligence that has stood the test of time throughout the history of Berkeley Assets.