A sea change from across the Atlantic?

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North America is leading the way once again, with the exceptional communicator and statesman Barack Obama safely installed in the hot seat for a second term.

Having led (i.e. caused!) the credit crunch, the US is making the most of its relative safe haven advantage and utilising the depth and diversity of its funding markets to great effect. This in turn has provided good real estate investors with more funding options through corporate bond issuances, plus loans from insurance companies as well as banks. DTZ boldly stated last autumn that, as a result, there was no funding gap in the US. In consequence, acquisitive US Private Equity funds such as Blackstone have begun mopping up bargains all over the world. Over the last year, domestic unemployment has decreased from 8.3% in January to 7.7%, homebuilder sentiment has risen to its highest level since 2006, and prices are up by about 17%.

Just as significantly, DTZ also said they expected the UK’s real estate funding gap to be all but eliminated by 2014, with equivalent funding lines to those active in the US recently tested and expected to expand significantly in the months ahead.

In the Eurozone, meanwhile, DTZ expect the funding gap to remain outstanding for some years. Even so, it looks promising that the crisis is taking a course “less bad” than most had expected  -much to the credit of (ex-Goldman Sachs) Mario Draghi, President of the European Central Bank and FT Person of the Year 2012. Draghi’s promise to “do whatever it takes” seems to be working.

As a result, the recovery of Greek Bonds has proven to be the hedge fund play of 2012. And if the Spanish government finally requested a Euro bailout, the country’s banks only required half the expected £100bn. The great exception of course is France, where policy makers seem to be doing their utmost to dismantle the economy (to the benefit of London). Economic disaster looks increasingly likely as wealth creators jump ship before they are pushed or even have their ships confiscated (as with Arcelor Mittal)!

Returning to the outlook for the UK, Mike Carney (notably also ex-Goldman Sachs) has been recruited as the new Governor of the Bank of England. He is widely considered to be one of the top two central bankers in the world, which is quite a coup for George Osbourne. Carney is generally expected to promote higher growth and employment, with interest rates staying lower for longer at the price of higher inflation.

This should be good news for investors like Inspired who concentrate on “real assets”, as values and incomes increase while debt as a proportion of value diminishes.

It is likely to encourage greater risk taking by investors who need to find higher returns in order to protect their capital, which will be at greater risk of erosion from inflation – currently standing at 2.7% and remaining stubbornly above the 2% target. Again, this represents good news for opportunistic investors like us: competition for assets may make it harder to buy cheaply, but there should still be plenty to go around as the US funds that bought loans in 2012 take action and make their margin by offloading in 2013. Additionally, our existing assets are all located in Inner London and should benefit from an increase in value, while capital should become easier and cheaper to raise.

I firmly believe that more risk taking (within reason) is a good thing generally: fear has a corrosive rippling effect through morale and into trust, investment and employment and has in itself become the greatest threat to our future wellbeing and prosperity. A more confident approach, as we’re beginning to see in the US, may just offer the perfect antidote.

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Smiles all around

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Star JP Morgan real estate analyst Harm Meijer and his team recently published their 2013 forecasts – and they made for very encouraging reading.

The key message underlined the strong capital flows into markets and the belief that we are entering bubble territory for prime real estate in core Western European countries, which will prompt investors to move up the risk curve and invest in secondary assets.
Experienced management teams will be able to raise capital cheaply. To illustrate the point, almost 90% of listed property management teams (as surveyed by JP Morgan) expect capital raisings in the sector over the coming months.

The report also specifically highlighted London in stating:

“The ‘London is booming theme’ will carry on next year and we expect John Burns, CEO of Derwent London, to say at our conference in January again: ‘I can’t say it is bad, when it is good’.”

Shaftesbury too recently affirmed that London is more vibrant than ever.

“And we agree with that. The interest rate for London itself is too low. Valuations will rise further, but we believe there will be more talk about property values, after those have further surprised on the upside, and the coming residential boom in 2013.”

That sounds good to me and we share the sentiment.

Earlsfield-2-06

Inspired is delighted to have acquired 19 sites during 2012. These will ultimately produce some 84 units of mostly residential accommodation in Inner London (typically Zone 2) locations and will be worth a total in excess of £20m on completion, with margins on cost typically exceeding 50% and in some cases even 100%+.

Such impressive returns are the result of a bold contrarian approach in a nervous market, not to mention an awful lot of very hard work. We couldn’t have achieved it all without the help of the people we have had the privilege of working with over the past year including friends, family, investors, lenders, professional advisers, and our Inspired team.

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Our objective has always been to establish an efficient business in which we and all our stakeholders would benefit. 2012 was the year we could truly say we succeeded in that aim.

I have absolutely no doubt that we will do even better this year and look forward to working both harder and smarter to achieve the best possible results. After all, it’s not really work when you’re having so much fun, is it?!

It’s a new dawn, it’s a new day …

By Martin Skinner,

Martin Skinner
Martin Skinner

Well after keeping radio silence for what seems quite a while, I’m proud to introduce a new member of the team to everyone.  Jack Christopher Skinner was born on the 26th March 2010!

Jack Christopher Skinner
Jack Christopher Skinner

Jack has already chosen his football team (Tottenham Hotspur needless to say) and is also starting to show signs of his parents’ impatience.  Like most youngsters these days, he’s also better at the high tech stuff than they are and is fully operational with his own Facebook, Twitter, You Tube and Google Buzz accounts.

Jack Dribbling for Spurs
Jack Dribbling for Spurs

So as you can imagine, life has been even busier than usual in the Skinner household.  In fact, this is the first time I’ve really been able to sit back and reflect on how dramatically things have changed over the last couple of months.

We’ve created a new family, the country has new leaders (hopefully better than the last lot), and Inspired has made its first great property acquisitions with Urban Share. Even the sun has come out!

Bush Road Purchased
The three properties bought so far include this 3-bed house in Bush Road, Surrey Quays, SE16 bought for £228k

Then again, some things haven’t changed and we still love London Residential Property.  Their recently published residential IPD (Investment Property Databank) report fully supports my own and Inspired’s views.

Aside from linking to the report here and the multiple award winning IPD here I thought I’d just share a few of the highlights with you:

“The residential total return index has experienced real [after inflation] growth of 86% [in the 9 years] to December 2009, compared to 33% in all commercial property. This equates to 7.2% per year in residential against 3.21% per year for commercial. The real capital growth in the residential index is the same to the total return in the all commercial property index. The residential income return on top of the capital therefore represents a real out-performance “bonus”.”

“Over fifty years real house prices have risen by 274% compared to a -55% fall in real commercial property value. This represents long run annual residential value increase of inflation plus 3.3% compared to inflation minus 1.2% per year for commercial property.”

“Residential has represented the best real return to a December 2000 investment [against equities, bonds and commercial property] at every stage throughout the previous 9 years.”

“The annualised rental growth over the 9 year period was 2.23% for residential compared to just 0.45% for commercial.”

“Residential market let investment has consistently rewarded investors with greater returns than commercial property and other asset classes since 2000 despite lower income returns.”

residential property vs other asset classes
residential property vs other asset classes

“The long term real performance of residential represents a hedge against inflation and volatility whilst maintaining impressive performance relative to other sectors.”

Property Risk Reward Spectrum
Property Risk Reward Spectrum

“The fall from peak to trough is smaller in the residential market cycles.”
Source IPD Residential Index 13/04/2010, The Strength of Residential as a long term Investment

As you’ll know if you’ve ever met me, I’ve long been an outspoken advocate of UK residential property investment – especially in London.  Discovering this report (as well as Jack’s arrival, of course) has made my 2010 !!

If you’d like to discuss the property opportunities we can offer, would like to raise finance for an amazing site, or you’ve discovered a distressed scheme or portfolio that might interest one of our funds or clients, we’re always keen to hear from you.

I’m also collecting high tech baby accessories and bargains/donations are welcome – particularly if you can offer me a great deal on one of these little beasts !

Awesome High-Chairs
Awesome High-Chairs

Can social media save my day?

By Martin Skinner

Putting on events is H.A.R.D.!

Admittedly I’m a newbie at it and I often try to do too much in too short a period of time but seriously I have a new found respect for those that manage to get regular events running – let alone running smoothly.

To give you, the reader, a bit of background on me I’m basically a residential property investor and advisor in London.  On the one hand I specialise in ‘supercharging’ yields for investors and on the other hand I specialise in developing accommodation for student and graduate occupiers.  The aim has always been to profit through raising the bar for:

  • quality
  • flexibility
  • community
Bedroom in a student/graduate houseshare

Bedroom in a student/graduate houseshare

Having been successful at this in the past I’ve been working hard to get back in the saddle after stumbling in 2008/9.

Most people in London can’t afford much more than £500 a month and it has always been clear to me that making life easier for sharers adds significant value to both investors and occupiers.

The government has managed to consistently interfere with misguided policies on Houses in Multiple Occupation and is about to make matters worse (in a populist attempt to combat NIMBY complaints of ‘studentification’) and in doing so will only force more landlords to withdraw from the marketplace.   Many major institutional investors either don’t understand the broader residential market (let alone students/HMO’s/graduate’s) or can’t be bothered with it instead preferring fire and forget commercial property investment.

Anyway, what’s that got to do with events you say?  Well, I see bringing interested parties together for great events, regularly, as key to building momentum behind a movement to solve what I believe to be a very serious problem – housing and enabling the next generation upon whose endeavours our retirement depends.

Getting people to spend some of their hard earned cash is very, very, difficult these days though and getting people to take time out of their busy schedules to attend an event or two is also very, very, difficult.

I’m sold on their value to an individual or a business (here I represent both) once established and I’m committed to both attending and promoting our own Inspired Events and other people’s events.  Because regular face-to-face interaction builds both:

  • breadth – expanding & connecting networks and
  • depth – strengthening relationships within networks

And here are some other reasons for perseverance that I was attracted to online:

  • Entertaining clients
  • Brand differentiation
  • Increasing brand loyalty
  • Highlighting community responsibility, or corporate social responsibility

But and it’s a big but, and contrary to the famous song I don’t like big but’s, I cannot, lie I’m really struggling to get people to book tickets to come along.

Expensive direct marketing (c1,000 personal contacts and c9,000 purchased) has failed to yield meaningful results and despite pumping in expert assistance, promotions, considerable sums of money and an unbelievable amount of time I’m struggling to gain traction.

The best results so far have come from kind friends – in particular Nick Tadd, Vanessa Warwick and Tony Chads – who have endorsed the event and spread the word.

The May Fair Hotel, W1

The venue - The May Fair Hotel, W1

If we don’t get a lot more people along we’ll still have a great event (and a lot more pre-paid drinks per head) but the message from the students and the investors and managers that are getting involved will be muted.

So I’m asking you for your help to get the message out for me.  I am not as smart as all of you and I’m certainly not as effective as all of you (no matter how many hours I put in).

If you are interested in coming along please book online at http://inspired.eventbrite.com by the 7th February and/or if you know any investors, accountants, lawyers, developers or fund managers please encourage them to come along on the 11th February.

This could be you (or me)

This could be you (or me)

Thanks !

🙂 Martin

07968 790 611 or martin@inspiredassets.co.uk

Location, Location, Yield !

By Martin Skinner

Right the snow’s over everybody and it’s time to get this show back on the road!

Unfortunately it’s likely to be quite a long and bumpy road so I thought I’d kick the years blog off with a priority Top 3.  Hopefully it’ll help keep things focussed on the journey towards financial stability.

The road ahead

The road ahead

Priority numbers 1 & 2 are “Location, Location …”
I did have a bunch of great articles with lots of lovely tables and charts demonstrating the likely future variances in house price inflation between key regions however partly as a result of being pleasantly distracted by all the new social networking sites and events (and of course the snow) I’ve managed to misplace them.  Still with traditional forecasting having been all but discredited perhaps we shouldn’t rely too much on them anyway.  Therefore I’ll just share my opinions with you and you can comment if you agree/disagree.  If you happen to have the tables/charts to hand then please feel free to post them too.

It seems certain to me that the North/South divide is going to widen in the years ahead as 1) investors prioritise properties in the safest, scarcest locations and 2) the [new] government  is forced to reign in its spending.

Northern regions are more reliant on the state than southern regions and they will suffer more as a result.  Demographics were forgotten somewhat during the boom and financial engineering was often prioritised over fundamental property investment criteria like location and future supply & demand.  Sadly many investors found that agents, property clubs and developers forecasts for rental income and re-sale values evaporated and have been left sitting on flats that in some cases could take a decade or more to get back to where they were estimated to be at their peak.  And that’s assuming the local populace doesn’t move to the south in search of better pay (or just any old job).  The same can of course be said for many foreign destinations – let’s not get into Spain or Dubai here.

The good news for those that have holdings there is that Prime West London is pretty much back where it was in 2007.  Cash rich investors have continued to fight over flats and houses in Mayfair, Knightsbridge and Notting Hill throughout the turmoil.  Once again the old adage Location, Location, Location has rung true and I believe it will keep ringing loudly for at least 5 years.  Investing in the best location you can afford will continue to pay dividends.

Central London

Central London

Priority number 3 is Yield
Many buy-to-let investors (and others) have managed to hang on to their portfolios despite significant negative equity because interest rates have been reduced so dramatically.  In most cases residential property investors have in fact benefitted from significant improvements in their monthly margins as rents have only dipped about 15% overall – as compared with about 50% on commercial property – and they’re now beginning to drag themselves back up.

This means income arbitrage is back on the menu.  If you can only get 0.5% interest from the Bank of England or a c4% dividend yield on equities then property starts to interesting above that level.

But what about rising interest rates for those looking to use leverage or with debt already in place?  The debate will continue to rage on this in the months and years ahead I’m sure (hasn’t it always?) however it’s clear that they will have to rise at some point and it therefore makes sense to build in some margin for error on the yield.  This can be a little difficult if you’re borrowing 50% or more and following the golden location, location, rules because yields on Prime Central London properties can be as low as 3 or 4% gross.

So my tip, and I doubt the big fund managers will like this one, is to stay prime and consider more management intensive residential uses such as student accommodation, young professional accommodation and short-let hostels etc.  If you were offered the choice between a long lease on a bank in a regional city centre at a yield of 5% or a flat with a 9.5% gross yield (7% net) in Central London what would you choose?

Example Urban Share bedroom

Example Urban Share bedroom

If you fancy learning more about student & young professional accommodation why not come along to our event on the 11th February where we’ll reveal many of the secrets to successfully investing?

Andrew Goodwin senior economic advisor to the Ernst & Young Item Club wrote the best article I’ve read this week (in Property Week).

Santa Claus – will he deliver in 2010?

By Martin Skinner

While researching and considering this blog I’ve been travelling to Poland with my family for Xmas.  My family consists of my fiancé Magdalena (and bump), my mum Heather, mum’s partner Bruce and myself.  We’ve just flown into a snow covered Poznan for our first Xmas in Poland with Magda’s family and my mind has naturally drifted towards Christmassy thoughts.

Santa dropping by
Santa dropping by

Like so many families around the world we’ve had a very tough year.  With such hard times so fresh in our memories and with such uncertainty ahead important questions are begging for answers.  Will the families get on well and have a great Xmas?  Will we have a better year next year?  And does Santa Claus really exist?

Clearly these are big questions and the answers will depend on your own beliefs and circumstances.  I’ll let you know how we get on in future blogs.  For now I’ll share a few of my beliefs and relate them to my specialist subject of investment and specifically investment in London Residential Property.

1. Fog is inevitable

I’ve had the good fortune to spend valuable time with some extraordinary leaders in both finance and property.  One great snippet I heard from a hedge fund manager once was ‘the world is full of fog; I’ve developed the vision to see beyond the fog’.

Fog
Fog

In reality even his vision couldn’t prepare him for the events of the last 2 years.  Despite this I do believe it’s important to come to terms with the fog and uncertainty we are suddenly so acutely aware of – and carry on with our lives.  Psychologically it’s probably the most important step we can all take on the road to recovery.

An uncertain environment offers great opportunities particularly when broadly recovering.  In this environment Inspired Asset Management (an investment business I advise) is fortunate to be fresh, new and without the legacy issues that will continue to hamper many of its competitors for years to come.  The first fund Inspired is advising on will be buying throughout 2010 and deals are likely to be considerably better than if future price rises were “assured”.

2. Fundamentals matter

Now more than ever when investing it helps to:

  • deliver products and services people need or want
  • target undersupplied markets
  • focus on very specific known locations
  • buy very selectively – ‘Alpha’ is a word used in financial circles to describe this approach to cherry picking assets
  • generate plenty of surplus cash flow

We received confirmation just yesterday that the first fund we’ve helped to raise with Inspired has achieved its first close and will be able to make the first purchases – a great way to start Christmas !

3. Think long term

Short-term sentiment matters (perception is often reality) however good assets and businesses if they are well funded and in demand will generally normalise over time.  If they can be “farmed” effectively to generate plenty of cash flow they should do well without suffering from the risks inherent in short-term speculation.

Property in particular is an illiquid asset class and should generally be approached accordingly.  Five years should really be the minimum period to plan to hold an investment – of course if someone offers to buy at a huge premium then early sales should be considered.

London
London

Instead of always trying to second guess short-term movements in markets and assets I believe it’s sensible to look at where supply and demand forecasts are likely to leave gaps in the medium term and seek to fill one of those gaps.

Inspired’s partner Urban Share for example achieves 95%+ occupancy rates and generates 9%+ rental yields on residential properties in Central London and with population growth forecast to continue apace while construction supply is likely to take five years or more to recover we see a gap.

4. Luck favours the bold

Putting time in to research and test your market thoroughly is generally time very well spent and I’m a firm believer in planning to succeed.  It’s important to also bear in mind that you also have to be in it to win it.  Many procrastinate from the sidelines while most others choose to follow the herd (too late).

Those with the guts to drive forward into the fog with their headlights on will often attract others to their cause as they prove their concept.  At Inspired we hope a real passion for Social Media/Networking, collaborating and engaging with our clients & peers along with establishing a successful investment track record will help us to achieve this.

5. Network and make yourself available

We’ve embraced social networking and have made ourselves available through sites like Twitter, LinkedIn, WordPress, Ecademy, Facebook and YouTube and encourage others to do the same.

In the finance & property sectors leaders like Philip Calvert (IFA Life), Robert Gardner (Mallow Street & Redington), JC Goldstein (CREOpoint), Nick Tadd & Vanessa Warwick (Property Tribes and 4 Walls & a Ceiling) and Jaime Steele (North Financial) are true visionaries and if you don’t follow them or participate in their networks yet (10,000+ contacts) I highly recommend you do.

Doors have already begun to open for us and we’ve met some extremely innovative and passionate individuals and groups.  If you would like to know more about us or can add value to our network perhaps come along to one of our networking events.  Our next one is on the 11th February in Mayfair and tickets are just £49.95 each.  Drinks sponsors are also welcomed.

Doors Opening
Doors Opening

And finally please have a very Merry Xmas and a Happy New Year

I suspect I’m not the only one pondering these subjects and while I have initially shared my thoughts with you I would be extremely keen to hear what you think too – please feel free to comment or indeed describe your own Xmas [belief/wish] list.

Now back to the festivities and the family.

Martin & Magda Merry Xmas !
Merry Xmas from Martin, Magda, Inspired & Stepnowski – !

Safety In Numbers

By Martin Skinner

The debate over our recovery from recession continues to rage and provides an amazing insight into the different ways economic facts and figures can be interpreted.  Forecasting is a tough game these days and I will simply express my opinion that we are experiencing a recovery more akin to a craggy[rock]-V than a W or an L for example.  This is based on historical rebounds and the remarkably rapid global response to the credit crunch in the following three key areas:

  • Loose fiscal policy through a) reducing taxes and b) increasing spending
  • Highly stimulative monetary policy (low interest rate) and
  • Vast quantitative easing campaign.

Even with this huge boost and my optimism we are being regularly rocked by shocks.  Last weeks’ Dubai debt crisis for example combined with end-of-year profit taking removed a good chunk of the years stock market gains.  Markets are nervous, investors are nervous, workers are unemployed and it’s going to take time for confidence to build.

So, in this uncertain climate how can investors profit whilst still hedging their bets against the downside risks?  A focus on location, cashflow and occupier demand will help.  Our chosen location is London where occupier demand is assured.  A cashflow boost is possible through servicing the undersupplied student and young professional markets (and multi-letting).  Demand constantly outstrips supply, rents are rising again and the low currency rate is tempting investors to the city.  Other strategies also work and the moral of the story is rather than running for cover each time we get hit by an aftershock we should be looking to adapt to the uncertainty/turbulence and push forward with an effective strategy and subsequently confidence in our abilities.

We will be exploring many of the issues involved in investing in student and young professional accommodation at our next event at the May Fair Hotel in London on the 11th February.  More details closer to the time.

In Other News:
David Smith – Alistair Darling’s balancing act: cut deficit or win votes
John Waples – Bosses’ bonuses will be next under the spotlight
Irwin Stelzer – Now Barack Obama gets down to work on job creation

And some funnies from the Sunday Times:

  • One for the naughty step – A masked robber who held up a restaurant at gunpoint was recognised instantly by the manager: she was his mother.  Jason Zacci’s face was covered by a bandanna as he threatened staff with a sawn-off shotgun and tried to grab cash from the till at the Wendy’s restaurant in Dearborn Heights, Michigan.  His mother also recognised the getaway driver, his girlfriend Amanda Yost.  (The Sunday Times)
  • To pee or not to pee – The mayor of Delhi has launched a campaign to stop people urinating in the streets.  Kanwar Sain wants to clean up the city’s image before it hosts the Commonwealth Games next year.  Posters have been stuck up around the city urging: “Don’t be Mr Wee-Wee”.
  • Trucker chisels DIY tunnel – Ramchandra Das, a lorry driver, used a hammer and chisel to tunnel his way through a mountain just so it would be easier to park his truck.  The 53-year-old from Bihar, India, took 14 years but said it was worth it. “I had to leave my truck miles away, so I decided to do something about it myself,” he explained.
  • You may now Tweet the bride – Forget kissing the bride; an American groom, Dana Hanna, had a better idea when the minister declared the couple man and wife.  He whipped out his mobile phone and changed his Facebook status from “in a relationship” to “married”.  He then sent a Twitter message, “Standing at the altar with @TracyPage where just a second ago, she became my wife! Gotta go, time to kiss my bride.”  Before that, however, he handed over her BlackBerry so she could do the same.  Hanna, a software developer from Maryland, said after the service: “This was just done to be funny.  We really don’t Facebook that often.”