UHNW individuals are increasingly investing in "trophy" commercial properties in global gateway cities
Billionaires give traditional real estate investors a run for their money, claiming an increasing number of trophy properties in the world’s biggest cities.
Superyachts, Swiss bank accounts and prized art have always been high on the luxury shopping lists of billionaires, but property has emerged as the asset of choice since the Global Financial Crisis (GFC).
We’re not talking a pied-à-terre in The Hamptons or a chalet in the Swiss Alps; instead, ultra high net worth (UHNW) individuals are investing in “trophy” commercial properties.
The GM Building in New York, the Gherkin in London and the Paris Marriott hotel are just a few of the bolder building sales to have captured the imagination of these investors in recent years.
Marriott, Champs Elysees
“The fact that they can consider bidding for something like the HSBC tower or the GM building is a relatively recent phenomenon, even five years ago we would not have seen it,” said David Green Morgan, Global Capital Markets Research Director, JLL. “The GFC has changed the way people view investment and property has become a favoured asset class among a certain segment of high net worths.”
This preference for property isn’t necessarily because the rich are getting richer. As an asset class, real estate offers a number of fundamental benefits that other investment vehicles do not at this point in time: consistent financial returns and exclusivity.
W San Francisco Hotel
“Returns in the bond market are exceptionally low if you hold to maturity so a four percent yield on property is very attractive,” added Green Morgan.
But the cachet that comes with owning an iconic building is second to none.
Grosvenor House Hotel
“Alongside owning a very rare piece of art or a vintage car, I suspect part of the reason commercial property is appealing is because they can say they own a hotel on the Champs Elysee, for example.
“These UNHW investors don’t bid on traditional office blocks in secondary cities; they want iconic towers or exclusive hotels in the major global cities, they invest because they are a rare commodities with strong wealth preservation characteristics,” said Matthew Richards, Head of JLL’s International Capital Group (ICG) in EMEA.
The finite number of these trophy assets is forcing investors to focus on fewer destinations.
A recent report from Wealth-X and UBS, which found that cities, rather than countries, matter most to UHNW individuals. The average billionaire owns four properties globally, worth US$78 million, most of which are outside their primary country of residence and just 20 cities house 34 percent of the world’s billionaire population.
And according to JLL figures, cities such as London Paris and New York draw a disproportionate volume of global real estate capital. In 2014, the three most active investment cities were London, New York and Paris. London alone closed deals totalling US$44.4 billion and cities in the US and Europe dominated the ranking with Asia Pacific represented by Tokyo and Sydney.
The InterContinental New York Barclay
“We are seeing a new breed of ‘generational’ UHNW buyers from Asia acquiring iconic assets in global gateway cities for wealth preservation purposes,” said Alistair Meadows, Head of JLL’s ICG in Asia Pacific. “These UHNW individuals are acquiring for the next generation of family members, hence taking a longer term (10-20 year+) view on their investments than traditional real estate investors.”
Deals such as the Grand Park Orchard (GPO) in Singapore are especially desirable among this investor segment. The mixed-use complex houses a luxury mall and a five-star hotel in one of Asia’s best-known shopping districts, Orchard Road. It sold in 2014 to a Chinese UHNW buyer for US$850 million – Singapore’s largest commercial single asset deal ever.
Private wealth is also targeting more unusual leisure assets such as golf courses.
“Lifestyle assets are increasingly appealing to UHNW individuals, especially from China where the leisure market is growing,” added Darren Xia of JLL’s ICG in China, alluding to the fact that China’s rapidly growing pool of private wealth is targeting assets that satisfy the personal interests of these investors.
Hotels, in particular, are attracting more billionaires than ever and this is partly driven by China’s expanding travel appetite. The Grosvenor Hotel in London’s prestigious Mayfair is currently on sale and is expected to appeal to UNHW buyers. Similarly, the Paris Marriott hotel sold to Chinese buyer in a landmark deals last year and global hospitality transaction volumes are predicted to reach an eight-year high of between US$65 to US$68 billion in 2015. Of this, Chinese capital will account for US$5billion – a fivefold increase on 2014.
St Regis, Aspen
“Hotels are also uniquely public and many UHNW individuals see these acquisitions as an extension or representation of their wealth,” says Nihat Ercan, executive vice president, investment sales Asia, JLL. “A hotel allows you to express yourself personally – the design, the concept, these are emotional drivers.”
Beyond 2015, retail and leisure assets will lure more UHNW individuals as investors seek out properties that match their own aspirations: attention Bond Street and Fifth Avenue, the world’s wealthy are after more than your wares.