UK real estate investing during COVID-19
London-based and Kuwait-owned Jade Merchant Bank (“JMB”) has continued to successfully invest in UK property during the pandemic. Their Investment Director, Stuart Jarvis, reviews the lessons learned.
Real estate remains a people- and relationship-driven industry, made all the more difficult as meeting those people in person has become a prohibited activity. JMB’s first lockdown deal was a fully ‘OTC’ takeover of BAE Systems’ £29m Christchurch, Devon campus for a UAE-based family office. There was a heavy reliance on previously forged relationships that allowed buyers and sellers to manage the complexities of the acquisition process collegially.
The analysis of real estate has undeniably changed during the pandemic, with the new question of whether the investment was ‘Covid-proof’? With BAE Systems plc on the lease, the takeover benefited from a FTSE 100 tenant with a market capitalization of £17.5 billion and long-term government contracts. No indulgence was needed to see the value here.
The most striking factor in the financial success of this transaction was leverage. More specifically, the Libor swap market. At the time of writing, 5-year swap prices for both Libor and Sonia are around 1.1-1.2%. At the time the acquisition was completed, they cost c. 0.15%. With inflation the hot topic for 2022 and beyond, setting that swap rate seems like an increasingly smart move.
The next acquisition for JMB in the Covid-19 era was the £53million Tesco Extra supermarket in Oldham, Manchester. Against a backdrop of closed shops across the UK, the supermarket sector has been heavily open to business and commerce. Lockdowns had catalyzed the shift to online fulfillment for the retail sector, dramatically weakening returns on retail space and sharpening those in the logistics sector. Supermarkets have been in the profitable nexus of being well located in city centers to provide their own last mile logistics center and using their own stores as hybrid warehousing and fulfillment centers.
This GCC investor made his first investment in the UK which underscores the confidence he has in the JMB team. Returns for this asset class have continued to decline since the transaction closed and we remain confident that this acquisition will perform well in their portfolio.
The final transaction of the year was the refinancing of a portfolio of High Street retail stores for a GCC client. Portfolio fundamentals remained strong despite difficult trading conditions. The core locations in regional town centers result in a variety of alternative usage scenarios. The tenant remains a brand name in UK retail and has weathered the Covid storm well. This was a pleasing result at the end of the year.
Having navigated the challenging investment conditions well, the JMB team looks forward to a post-Covid investment market, but still one based on relationships, recognizing the opportunities of the day and maintaining an unwavering focus on investment fundamentals.
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For more information, please contact
Stuart Jarvis
investment director
Jade Merchant Bank LLP
3rd Floor, 33 St James’s Street, London SW1A 1HD
www.jademerchantbank.co.uk
For media inquiries please contact
Stuart Feldhaus
Hawksmoor Partners
36 Spital Square, 4th Floor, London, E1 6DY
[email protected]
© Press Release 2022
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