Private Capital Pulse: Episode 6 – Why Real Estate Remains a Top Asset Class for Investors

Transcript

Hello and welcome to the latest edition of Private Capital Pulse, the series brought to you by DLA Piper Australia. My name is Jon Ireland, I'm a corporate funds partner based here in Sydney and today I'm absolutely delighted to be joined by Stephanie Lambert, who's a real estate partner at DLA Piper and the sector lead for us in Australia. Hi, Steph. Great to have you with us.

Hi, Jon. Really great to be here, thanks for having me on.

It's terrific to have you. We're going to be getting back into the asset level with this discussion today. We've been talking about funds and fund structuring, capital raising, so we're now getting back into the weeds of the transactional and investment world. And Steph, maybe if we could kick off just with your views, keen to hear from you on what's hot at the moment and in terms of the underlying sub sectors within real estate.

Thanks, Jon. Always happy to talk about real estate. We're seeing a lot of interest from our inbound investors in relation to particular asset classes across Australia. I think generally it looks like it's going to be a larger year for transactions.

There has been a lot of interest in the industrial sector and I think that's got two aspects to it.

The first one is the rise of, or the continuation of, e-commerce is obviously a huge driver of that. But also the fact that the warehouses are typically, and industrial assets, are typically able to be converted into appropriate assets for data centres as well.

So, data centres is an area which we've had a lot of interest in, and we've been very active for our clients in over the last few years. But we're continuing to see that growth particularly as well with established industrial operators partnering with data centre operators now to roll out some of their industrial assets for DC sites.

In addition to industrial, we're also seeing interest in the living sector and the retail outlets for retail these typically tend to be sort of the sub regional shopping centres where they have really good returns on investment and upside in terms of development potential.

We have also seen a continued interest in the private credit space and it would be interesting to see how this pans out over the course of this year and also next year. ASIC, as you know Jon, has issued earlier this year, it's paper which is looking to understand further the private and public markets diversions, that's where public markets have declined and private markets have increased.

And Jon, we've worked to get some stakeholder engagement to respond to that paper. And I might hand over to you just to give a bit of an update on where that's at, given that submissions have now closed, I believe.

Yes, absolutely. And it has been interesting where we've been sitting in industry briefings where these messages have been coming through, partly in response, but also some reactions and general discussion around that ASIC paper.

Just even picking up on the private credit team, obviously that's a real connection point between the private capital universe and generally in some of the issues that the papers' exploring, and the real estate world, the lending into real estate businesses.

I think one of my takeaways from some of those industry discussions is being when we have certain areas coming into the crosshairs that the, the need to be really clear around the industry make up and the commercial environment in order to understand the risk profile.

And the example in the private credit space is an apt one because that's really very much an area of focus of the paper and a lot of the work that ASIC has been doing, and yet it is such a broad spectrum. It is a 'Broad Church' of very different types of business models and risk profiles.

To compare lending in a consumer lending environment at a smaller scale is very different to the sorts of institutionalised commercial real estate lending that we might see and work with. Comparing again with the private credit activities of a private equity global lender, you know which is essentially exposed to global M&A markets.

So, in some senses that other end of the spectrum, the very institutionalised and certainly looks a lot more bank like in terms of its maturity levels and also its attitude towards compliance and risk management.

So, it's very hard and I guess not a one-size-fits-all space and the challenge will be to understand the various different, you know, segmentation aspects.

And no doubt it's going to be fluid. Like it's going to be a watch this space right in terms of where we go to from here.

And I was going to say actually, just leveraging into then the watch this space part, at the time that we're talking now Steph and recording this we're on the cusp of the federal election here in Australia, and so jumping into that, what could that mean from a real estate perspective, whether it be from, you know or an investment piece?

I think a lot of people are looking at this election with keen interest, particularly in relation to the living sector.

So, as we know, the existing federal government brought in the Build to Rent tax concessions at the end of last year and they include reducing the withholding tax to 15% for eligible build to rent assets.

Now the opposition have been quite vocal of the fact that they didn't want this legislation to pass, so if they were to get elected this this time, whether or not they would continue with those tax incentives or whether or not they'd be looking to remove those.

The other, the other thing in the living sector is the Labor Government, our existing federal government's, Housing Australia Future Fund, the Coalition have been quite vocal about the fact that they would be looking to remove that program and so a lot of participants in the fund who have already been approved are looking at this as to whether or not they will continue under the current government or whether a new government coming in is going to remove the scheme.

So, that's very much a watch this space.

Yes, it's interesting, I mean obviously across the board tax has been a key battleground for some of the electioneering that we've been seeing.

So, that's really interesting to hear how that potentially ties in with some of those real estate regimes and changes.

Well, that's great. Thank you so much, Steph.

Thank you for joining us today.

We'll wrap up there, appreciate it.

Thanks, Jon

And thank you for joining us.

You'll see future episodes wherever you pick up your podcasts, so please do stay tuned. In the meantime, if there are any topics or ideas you'd like us to cover moving forward, please let us know.

Also, the back episodes are there for you to view at your leisure, and in the meantime we'll keep you posted on the latest industry trends and look forward to seeing you next time.