While the health crisis linked to the Covid-19 epidemic doesn’t fail to redraw the face of the real estate market, Christophe Nadal, co-founder and CEO of the group, shares his analysis of the current situation and the strategic opportunities on which MIMCO Capital is positioning itself.
Do you consider the possibility of a soon normalization of the economic situation in the real estate sector?
No, on the contrary we feel that we are only at the beginning of a cycle. The health crisis has led to an unprecedented economic crisis which can’t be offset but only mitigated by the intervention of states and central banks. It will take time to return to the "pre-Covid" level of activity. Containment has helped "bring" the epidemic under control in Europe but it continues to grow strongly in other regions and signs of resurgence are appearing again on the old continent. In addition to its direct impact on the economy, the health crisis has structural impacts on uses.
What vision of real estate at MIMCO Capital today?
First of all, it is important to dissociate between the different approaches that one can have on real estate.In fact, on the one hand, there is the financial management of real estate, which is based on yield real estate, in particular with SCPI or OPCI type vehicles in France or other foreign real estate funds listed which define a long-term holding strategy based in particular on economic cycles in order to enhance the value of assets.
On the other hand, there is the value added approach to real estate which is more focused on the value potential of the building or land development. This second approach, which is the DNA of the MIMCO Capital group's teams, requires another more "short / medium term" strategy and is based on value creation not directly based on the economic cycle but on the direct potential of the company.
The underlying potential is determined with the modes of use which evolve towards new concepts, whether they are related to retail, hotels, residential or the office, whether with the fast evolution of standards environmental and energy performance, but also with the improvement of spaces.We focus on assets that require active management or repositioning. This is where the strength lies, the integration of the entire value chain, from the partner / investor relationship, the structuring of funds, through asset management to property management.
In a context of economic uncertainty, our objective is to invest at prices undervalued to the market, but requiring repositioning works. Once these buildings have been restructured, they generally meet the expectations of long-term investors. In an environment where rates are likely to remain very low, the search for secure long yields will remain strong.
What strategy for your geographic positioning?
Among our convictions as a real estate operator, we believe that it is essential to be present in the country where we have chosen to invest. Our keyword is "local presence". After many years of experience in the real estate industry, we learned that in order to be able to obtain opportunities, it is important to be there to build a quality network, and that takes time. Competition is so important in this sector that a local presence is essential to be at the forefront and on the lookout for quality acquisitions.
In the real estate fund industry, it is also possible to mandate an asset manager in a third country where you want to invest, but how is it possible to have a perfect alignment of interests when he buys on behalf of other funds and / or for himself? Who will be best served?
For example, we are present in Germany, more precisely in Berlin, for our investments in Germany, where we have an integrated asset and property management team to be as close as possible to our assets, to develop and maintain sourcing as well as to have a good command of local subtleties.The same is true for the real estate operations that we are developing in Luxembourg, with a team present in the capital and which allows us to deploy a lot of energy every day with the aim of finalizing qualitative operations in a very competitive market.
Towards a globalized Pan-European strategy?
Our positioning in Germany and Luxembourg doesn’t mean that we are globalizing our investment approach on the same vehicle. Our market studies and our local expertise mean that we have determined strategies according to the economic and real estate contexts of each country.
We are positioning ourselves in Germany on rental yield real estate, and more specifically in commercial and office where there is still potential for valuation in certain secondary cities. Sqm prices and rental values remain very consistent, sometimes undervalued, which contributes to the good fundamentals of real estate. In Luxembourg, the commercial real estate market and offices is not deep enough; the yield are very aggressive and the assets are often very large in size so that we can consider a fund with a “Core / Core +” oriented return strategy.
The Luxembourg residential real estate market has been booming for more than ten years and is even catching up with several decades of stagnation. The latest statistics show that for the past ten years, prices have on average changed by more than 5.4% per year. Which makes it the most dynamic European real estate market. Residential real estate in Luxembourg also benefits from solid macroeconomic fundamentals and a very stable political environment; the pressure of demand remains very strong mainly due to its rapid economic and demographic growth (which is explained in particular by the significant immigration from European countries due to the dynamic labor market). We have therefore chosen to position ourselves on the development of real estate development operations and the restructuring of obsolescent buildings on high quality locations.
We are certainly witnessing a transformation in real estate, but does this transformation call into question MIMCO Capital's investment strategy?
Therefore we believe that all of these parameters must be taken into account, which depend on the asset class. Residential is resilient because demand remains higher than supply, interest rates are at historic lows, and the cost of capital is maintained due to low price elasticity. On the other hand, for commercial assets, the impacts of the current crisis can be potentially significant depending on the location and the activities. The parameters concerning the analysis of our operations now incorporate more anticipation of new trends related to user behavior.
Article written by Christophe Nadal, co-founder and CEO of MIMCO Capital