The era of the Czech real estate investor began during the last market crisis we went through, with CPI being the most obvious example. That makes it the first complete cycle most Czech funds have seen. Financing and pricing have shifted significantly, but the opportunities this time will be of a different nature.
Every swing of the market, every cycle brings opportunities. The last crisis produced a range of opportunities for investors that put their trust in the Czech market. Those investors don’t regret building their portfolios during a period with little competition and extraordinarily cheap financial resources.
The pandemic marked the beginning of a more difficult period, which robbed us of basic certainties, including the possibility to travel. Higher energy prices followed, and worst of all, a geopolitical crisis caused by military conflict. Yet, many Czech investors believe in the market and there are still transactions taking place.
Financial resources are now far more expensive, but despite these problems, the Czech market has proven to be resilient. As I see it, if the big Czech funds don’t think they can sell assets at a good price, they simply won’t put them on the market. They’d rather wait for better times when interest rates start falling. I don’t think we’ll have to wait long for this, however, because inflation is coming under control.
Most of the big Czech real estate funds were set up in a time when basic interest rates were unrealistically low. But those low rates and falling yields are all they’ve ever known. Will they be able to adapt to the new conditions?
I’m sure they will. The bigger funds have carried out a rational diversification, investing in a variety of sectors. They have logistics, office space and there’s been a certain level of increase in rents. The value of real estate will rise in the long term.
For individual investors, it’s a matter of expectations. If you want to have your money placed long-term in real assets and entrusted to professional management, you’ll receive an appropriate level of yield. If your goal is to collect double-digit yields, you have to accept higher risks. We’ve entered a period where financial resources have a higher value. This is proper, because before this, financial resources were unusually cheap and available. I think the new situation will lead to greater responsibility and if there’s a correction in prices, this is fine. It definitely doesn’t mean that investment in real estate should stop…It just means people will consider their investments more carefully.
Before these problems all began, real estate investments were almost guaranteed to be profitable, no matter what defects the assets had, what condition they were in, or how well-leased they were. Over time, yield shift would usually erase all the defects. In this new era, I think investors will look far more closely at the parameters of the properties they buy and their real potential. If it’s done this way, real estate is still a good investment.
Buying wisely is one thing. But isn’t taking care of it and managing it just as important?
This is the right question. We had a period when, frankly, expertise wasn’t really needed. Even transactions took place quickly because the demand was so strong and there wasn’t much supply. Now, highly professional teams are handling real estate investments. So, as long as the parameters of the professional care are set correctly, you can buy a property and trust that it’s going to work. I’ve had the good fortune to be on the expert committees of several funds, so I can see the care they put into valuations, ESG, management and tenant communications.
The time for professionals has arrived, in other words.
I’m really glad you put it that way. I believe it’s time for professional management to be more than simply making sure the building works.
Previously, you’d hear people comparing real estate investments to bonds…Just invest — and then wait for the money to start pouring in. It seems as if people are realizing now that owning a property successfully takes a lot of work.
That’s exactly it. If you buy bonds or shares, there’s very little you can do to influence its value. You just sit there and watch what happens. But when you buy a property, it’s a great opportunity to maximize its potential. The more professional the team that’s involved, the better things will turn out. I could name a lot of Czech funds right now that are run by true professionals. They invest in top properties, best-in-class and they know exactly how they should be fitted out and managed.
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