Interview with Jay Kwan of QuadReal Property Group
Q. How has QuadReal’s appetite for the real estate sector evolved in the last 12 months?
Our specific long-term convictions in real estate haven’t changed, but our short-term tactics have appropriately evolved to meet our view of the market today. We have sharpened our focus even more in three ways – to focus on the threads of demand that drive cash flows and whether they will outperform inflation, to closely assess current and future supply risks, and to assess the relative attractiveness of an entry point in any investment.
Q. Which sectors does QuadReal favour and why?
In general we don’t find entry points to be particularly compelling. In fact, many return indicators point to UK industrial having outperformed all other European sectors in the first quarter 2023. It’s still very early days, but it does beg the question whether now is an attractive point to re-enter that sector.
We further have a strong conviction in the living sectors in the long term, but we’re going to observe cap value movements in the short term before we decide to re-enter the market in earnest.
Q. Which world cities does QuadReal favour and why?
That’s a very broad-based question, as it depends what sector we’re considering.
We remain constructive on London as a global city in the long term and will continue to be active in its residential and logistics sectors. Both enjoy a favourable supply and demand imbalance, as well as high barriers to entry for more stock to be built.
We also continue to focus on the world’s most economically powerful centres and their environs – New York, Los Angeles, Paris, Toronto, Vancouver, Tokyo – to name a few. They provide the best opportunity to invest in industrial, residential, office and the alternative sectors and provide strong, stable long-term returns. We are committed to helping build communities, where people live, play and work.
Q. What returns does QuadReal anticipate making from real estate over the next year and the next five years?
While short movements in price are an important measure to track, we base our investment decisions on an asset’s long-term intrinsic value. When we buy real estate, I want to know how that property will have performed in 10 years’ time and beyond, not what its short-term market to market movements will be.
Q. What is QuadReal’s approach to ESG?
As part of QuadReal’s commitment to being a responsible company, we are involved members of the communities where we invest and we believe in advancing ESG through our actions.
QuadReal’s entire team is dedicated to integrating environmental, social and governance practices into company’s core activities, including corporate, global real estate debt and equity due diligence, investing activities, and management. We take a systematic approach to understanding our ESG responsibilities – identifying and prioritising our biggest levers for positive change.
In 2022, QuadReal committed to an accelerated target to reach net zero carbon by 2050 across its global portfolio. And we hold ourselves accountable by benchmarking our success through the Global Real Estate Sustainability Benchmark (GRESB). We were ranked first in the Americas for real estate in 2022, and fourth globally.
Q. What do you see as the biggest opportunities and concerns over the next year?
There are always challenges and opportunities in the market, and today is no different. There are material debt maturities coming due in the next five years – more than the five years after the Global Financial Crisis. We established credit investment capabilities in 2022 to capitalise on those opportunities, as such maturities become a catalyst to re-set overall market pricing.
We also see opportunity where there is indiscriminate sell-off, where entire sectors fall below long-term intrinsic values.
Fundamentally we need to incorporate being a value investor in addition to being a growth investor; being a situational investor alongside being thematic; and to advance the capability to be a credit investor while awaiting the right moment to continue our equity-based strategies.
