Stay ahead of the curve. Think outside the box. Don’t follow the crowd.
Yet the temptation is often to do the opposite and become distracted by the hype surrounding a trend or asset class. But property is a prolonged process. Investors keen to make the best returns need to act quickly and look for opportunities in unloved sectors and locations.
The Big Short follows a group of people who dared to gamble on an impending financial crisis at a time when the thought of a crash seemed laughable to most. The film provides the ultimate example of how important it is in business sometimes to ignore commonly held opinions and make bold, independent decisions.
Before the announcement that the Olympics would be held in Stratford, the area was one of London’s most deprived, attracting little or no development. It was the first movers - those with the foresight and imagination to understand just how significantly the area would change - who made the biggest profits. The hotels we bought in Stratford in 2011 on the back of Westfield’s major investment attracted unsolicited offers just two years later, leading to us exiting with significant profits ahead of business plan.
As well as predicting hot areas, sector focus is important. Since purchasing Generator Hostels in 2007, we have been able to use our extensive network in Europe to identify well-located suitable assets and use this base to build a serious and well-respected brand in a sector that has traditionally attracted little interest from institutional investors. Generator is now the world’s fastest-growing hostel business, with 14 European destinations and two more set to open this year.
We developed the company behind the assets with a strong management team and built it into a globally recognised brand. It is now the market leader in an emerging asset class where the business fundamentals are considerably more attractive than the mid-range hotel industry.
So where should investors who want to be ahead of the curve be focusing? There are interesting opportunities in locations such as Leeds, Reading and certain German cities. Having granular knowledge of each market is key, as the opportunities lie in the individual story, not some broad trend.
Trends that came and went during the financial crisis now offer opportunities. For instance, housebuilders were forced to diversify by offering financial products such as shared equity mortgages. Now the economy has improved, they want to sell these businesses to focus on their core activities.
Care homes have for some time offered attractive fundamentals. We entered this sector in 2011 but with a focus on specialist private care, and are still involved in it, principally because the ageing population means demand will only increase, and the housing crisis makes freeing up family homes by moving older people into tailor-made accommodation an attractive proposition that the government will want to encourage.
Buying assets through corporate transactions is another way of getting better deals on assets that others might ignore because of the complication of acquiring a corporate structure. For investors who are prepared to put the work in, being open to this style of investment enables value to be realised as the underlying assets can be acquired more cheaply and upside is generated through building brand equity in the corporate entity too.
On the other hand, those who rushed to enter the high-end central London resi market and are developing apartments that would have appealed to wealthy overseas buyers may find they have followed the crowd and arrived too late.
Keith Breslauer is MD of Patron Capital