These are days of low interest rates (good for borrowers) and low savings rates (bad for savers). Savers are looking for better returns on their spare cash and increasingly they’re moving up the risk curve to find them. Sound familiar?
Here’s a couple of investment possibilities that are in the European market at present, both real estate and both higher up the risk curve, each in their own way.
The Bruntwood Group’s U.K. retail corporate bond will pay fixed interest of 6 percent per year gross, payable twice a year in arrears until 24 July 2020. So it’s a seven-year fixed-rate bond. Corporate bond launches have been a feature of the recent investment landscape in the United Kingdom, as companies unable or unwilling to raise funds from non-lending banks seek to raise them from other sources and help to satisfy retail investor demand for better returns, albeit with higher risk. Other U.K. property companies that have recently tapped the retail corporate bond market include student accommodation provider UNITE Group Plc and Helical Bar Plc. Bond launches have frequently closed early, indicative of healthy investor demand.
Interestingly, Bruntwood — a family-owned business with a diversified portfolio of 110 office buildings across Birmingham, Leeds, Liverpool and Manchester valued at £891 million ($1.3 billion) and leased to more than 2,100 occupiers — is addressing the issue of higher risk by putting its property assets up as security for the bond. Although its LTV is 63 percent, the company has never breached a banking covenant — and it can produce tenant retention statistics of twice the national average. The firm is confident of its approach. True, it’s not prime, core London, but there is life outside the British capital, as those of us who live in the provinces can attest.
And Savills recently put out a note on the sale of The Telegraph Field in County Kerry in Ireland, the historic site of the first successful transatlantic telegraph cable — as you can see from the picture, this is an original green field sight complete with girl’s-best-friend big rocks and yours for a guide price of €160,000 ($205,000). The Savills note states that “the 0.41 hectare coastal site is located on Valentia Island, with beautiful views of Foilhommerum Bay and the Skellig rocks, a UNESCO World Heritage Site. It includes the ruin of the 150-year-old Anglo American Cable House, making it an ideal site for a cultural centre with global significance.” It’s a development project, then.
According to Peter O’Meara, investment director of Savills Ireland: “The Telegraph Field is the birthplace of global communications, one of history’s game-changing moments and equivalent to the invention of the Internet. The site would be ideal as a tourist destination and the island is a one-hour drive from Kerry airport, linked to the mainland by both bridge and ferry.”
Isambard Kingdom Brunel’s Great Eastern steamship carried the first successful transatlantic cable to its terminus in Heart’s Content, Newfoundland, 2,300 nautical miles (4,260 kilometers) away. The old and new worlds synched in communication in July 1866, says Savills, and New York City’s Broadway was lit up by fireworks in celebration. The occasion is commemorated on the dome of the rotunda in Capitol Hill, Washington, D.C., among five other momentous historical events.
So that’s two ways of getting real estate exposure. Neither is a recommendation; as we all know, the value of assets can go up as well as down. In winter, on Ireland’s Atlantic-facing west coast, asset depreciation and exposure of another kind are distinct possibilities. But I know what I’d do if I had €160,000 or so of risk money. Anyone for a JV or a club deal? It’s a bit radical, I know, but we could launch a fund. Oh well, it was a nice idea.
Not a subscriber to IREI Insights blog? Sign up to receive alerts on new blog posts.
Richard Fleming is editor of The Institutional Real Estate Letter – Europe.
