This year has been marked by a number of wins where I felt a lot of the heavy lifting of the past several years was paying off, only to wake up, in some cases the next day, to find I was facing some of the greatest challenges of my career.
I have become a reader of Oaktree’s Howard Marks memos. One this year, in one of those wild-ride high-and-low weeks, had the title It’s Not Easy, where he shared his insight on investing following a conversation he’d had with the legendary US businessman Charlie Munger. He laid out interesting thoughts that have parallels with my 2015.
The first is the concept of second-level thinking and that “market transparency tends to reveal and thus preclude obvious mispricing”. My take on this is that you can’t just buy the index and expect to make money. I attended many conferences and committee meetings this year where I was asked for my comments on the general state of the market, to which my typical response was that, despite positive or negative trends or perspectives, it was all about stock selection and disciplined underwriting. This year, we exchanged and/or completed on two income acquisitions in Paris long before the tragic events of several weeks ago, and at a time when most people internally and externally were saying “why Paris?”, and that seems to be somewhat of a contrarian bet.
Yet our team spent a huge amount of time identifying submarkets where demand fundamentals were quietly experiencing significant improvement based on transportation infrastructure improvements and shifting ‘live, work, play’ preferences. We were fortunate to be aided by historically low financing options, given ECB stimulus, and have turned all of these investments into significantly accretive additions to our business in a market where most reports reflect a ‘disconnect’ between space and investment markets and historically high prices.
The second thought Howard shared in the article was “the things everyone likes” or concept of “the investing herd”, and that what’s clear to the broad consensus of investors is almost always wrong.
I draw a parallel with the massively overused reference to “the wall of capital” and perception that there is so much money sloshing around that it doesn’t matter what you do, there will be someone there to buy it or lend to you at numbers that make your eyes water, so don’t worry. It might have felt like that for the first part of the year, but ask anyone who was counting on this in late summer/early autumn when Asian stock markets halved their value overnight.
We are all hoping it was a blip, and that if anything it reinforces the case for global diversification, similar to what we experienced having diversified out of Canada before oil prices halved this year and affected the performance of our Alberta assets. Deals where investors were looking to take profit and sell outright, or recap a part interest, were faced with much shorter lists.
Last, Howard talks about “risk and counter-intuitiveness”. We have chosen to make development a significant part of our global business and even more significant component and basis for how we started the business in London. The challenge is always to make sure we obtain proper risk-adjusted returns and not simply price off some spread-over gilts or IPPs. Development is arguably the most complicated investment involving risk in planning, construction, financing, leasing and investment.
Best wishes to all for a happy holiday season. Hopefully we will all have an opportunity to spend some time with our families and have down time to think about our accomplishments and challenges over the past year, as well as consider the opportunities for the year ahead. The one thing I think we will all agree on is that it won’t be easy and, frankly, probably wouldn’t be as much fun if it were.
Paul Brundage is executive vice-president and senior managing director - Europe at Oxford Properties and also junior vice-president of the British Property Federation
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