The Evolution of Private Investment

Jones Lang LaSalle takes investing in UK property to the next level for Asian investors

Over the past year or so — probably longer — Colliers International, King Sturge, Jones Lang LaSalle, Savills and a clutch of other agencies and developers have travelled all the way from the UK to showcase London properties for sale in Hong Kong. Often part of regional tours that also stop in Singapore and shanghai, the events organisers have sometimes gone to great lengths to woo buyers at swish hotels. Some have kept the proceedings businesslike and held them at offices. Either way, they keep coming here because the market is a strong one and Hong Kong, and Asia as a whole, remains a prime location from which to cull overseas investment in London.

Almost all have been flat-based sales showcases, running the gamut in price, size, style and location, from the massive King’s Cross redevelopment by Argent, to Savills’s presentation for Strata, to the recent JLL showcase for Battersea’s The Regent. The list goes on and on. There are clearly buyers in the region for these properties, as showcases have been almost uniformly successful, and developers are willing to come to them.

But a recent trend in investment is taking things a step farther. Banking and lending in the UK at the moment is cautious, and developers are facing hurdles too, regardless of the fact that London is staring down the barrel of a housing supply crunch. Locals are demanding property leading to a rise in the number of households in the city, and foreign nationals continue to pour into the city for work. The net result is developers getting creative and looking to Asian investors as part of the solution to their financing woes — and not necessarily to the institutional investors one might expect. As Michael Glancy, Manager, International Residential Property at Jones Lang LaSalle in Hong Kong puts it, “As lending is difficult to get at this moment in time I we expect developers to continue to be open to joint venture partners. At present [JLL is] assisting developers to find suitable JV partners in Asia. We have a dedicated team in Asia that work on this on these types of opportunities on a daily basis.”

The concept is similar to a hedge fund in that it’s a company investing in large block or JV partnerships. With lending tight, UK developers are looking overseas for both the familiar individual investor (such as those for single flats) as well as residential, retail or commercial block investments or joint ventures. The joint venture is among the oldest investments in the book, and the associated phrase “venture capitalist” is a loaded one — though quite separate from a joint venture investment. A JV is simply two parties agreeing to develop a certain asset, be it a property, a technology or product over a finite period of time. Some more recognisable joint ventures include Sony Ericsson, Miller Coors and Remy Martin’s winery in Tianjin. True, those are massive multi-national conglomerates, but everyone has to start somewhere.

JLL purchased real estate consultancy King Sturge in May, which JLL expects will give it an even broader international scope and provide one-stop shopping for its clients, including sourcing major investors in the region, and maximise value for landlords and tenants alike. Admittedly entering onto a joint venture is a big step. “Investors will usually start with smaller property purchasers and then build towards larger investments,” Glancy explains. “These investors will usually own some smaller investment properties, however these will be for their own personal property portfolio.” For those who are considering a more significant investment, JLL’s services include feasibility studies (key in any joint venture), due diligence and financial viability analysis. That latter is an important bit of information given that most developers are seeking a single substantial investors as opposed to a collection of smaller investors that could potentially create a consortium. “[Developers] will usually look for one large investor to keep the joint venture agreement simple,” Glancy states. Investors are as varied as investments. They can be taking the leap purely for financial gain as easily as they can for the glamour factor. “The JV partner may wish to be a silent investor, as they do not want to let the public know and are only interested in the capital return. Others will want to be an open JV partner.”

It may sound like a lot to bite off, and it is. But there are advantages over single unit purchases. Determining the capital values or rental returns on a London property are as simple as they are solid, but as Glancy points out of a JV, “The upside is that you can get some great returns by doing JV or block investments. It all depends on what type of investment, however with residential you can get a lower price by purchasing blocks. This then increases the rental yield and also the overall return when selling.” So if you have a flat, maybe two, the next step may be joint venturing — if you have a couple of buck lying around.