United Kingdom
Real Estate and private equity – a collaborative new era? - Jason Briggs
BDO recently conducted a survey with senior decision makers in real estate and private equity and found that valuable investment opportunities could be missed unless both sides are able to adapt to the changing lending landscape.
Real estate businesses continue to look to bank lending for investment despite the tight lending conditions of the last few years, with nearly three quarters (72%) citing a lack of bank funding as the main barrier to growth.
However, there is a major untapped source of funds available via private equity houses, which are showing strong appetite to invest in the sector - with 82% of private equity investors expecting to see an increase in investment in real estate over the next 12 months.
But, despite this optimistic outlook, nearly a third of private equity investors (31%) believe a lack of available opportunities in the real estate sector poses a significant barrier to growth. This divergence highlights the complexity of the investment environment in which both parties are evidently keen to operate.
With both parties sharing the appetite to pursue greater levels of investment in the next 12 months, real estate companies and private equity need to work together to overcome their differences and identify appropriate opportunities from which they can both benefit. This will require a more flexible and long-sighted investment approach from both sides, to ensure they can find the right partners and, in so doing, maximise return on investment and meet their objectives.
Real estate companies need to be willing to share bigger stakes in deals and move away from the ‘one debt provider’ model. Private equity, on the other hand, must shift their focus from traditional asset classes in Central London or look to different regions of the UK beyond London and the South East to find the return on investment they seek.
Marrying up the opportunities between real estate companies and private equity houses is of paramount importance. Tighter lending conditions have meant private equity players are entering the market with more regularity, casting their nets wider into the real estate sector in pursuit of better returns.
Given that real estate investors and private equity houses share ambition for greater levels of growth and investment over the next 12 months, there is a clear win-win scenario for both parties. But only those real estate and private equity players willing to adopt a flexible and forward-looking approach, looking beyond traditional investment scenarios and asset classes, will be in a position to respond when opportunities arise.
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