Young Professionals Conference Lisbon 2019: Presentation Summaries

After looking to the future landscape, Andrea Carpenter, Director of Women Talk Real Estate and author of ‘High Rise and Fall: The making of the European Real Estate Industry’ took the audience on a journey to yesteryear. We always talk about ‘post-GFC’ but we can also learn from life before Lehman. Interesting to learn from a quick audience poll that the majority of the audience were in high school when the Lehman Brothers collapsed meaning a whole generation is now at work in real estate who were not on the scene during the run-up to the GFC.

Andrea shared that the modern real estate investment industry was largely created thanks to US investors with their banking approach to real estate – a high risk, wholesale, process oriented (balance-sheet and cash flow analysis) approach and use of leverage. Big played, highly leveraged investments lead to the collapse after Lehman, as Morgan Stanley and Goldman Sachs in particular lost huge amounts of equity and the banks that lent to them lost out even more. 

On the contrary back in Europe, ING and Dutch Investors had started commingled funds before the GFC with a core, closed-ended, low leverage strategy gradually taking on more risk and leverage when Prologis launched the first Luxembourg fund and changed the way funds operate in Europe. 

‘Technology is the new Debt’ – Similar to debt before the GFC when real estate investors and managers didn’t know what they were doing, we may ask ourselves the question now if we really know about the technology which is set to have a huge industry-wide impact and do we know how to harness its potential in a helpful way?

In general advice to the audience, Andrea suggested that we are much more prepared for the future if we can remember the past and that bad habits are often formed in good times. 

Continuing the focus on technology and the digital age, Antony Slumbers from Estates Today gave an upbeat presentation challenging the audience to look at the age of the consumer and how the customer is finally revolutionising real estate. Antony talked about the trinity of technology, on one hand there is a huge influx in data available for us to use, in turn accelerating the rate of change and spurring the advent of new technologies. 

Antony referred to  Artificial Intelligence (AI) and told the audience how voice and facial recognition, and machine learning are revolutionising business and work, and are set to optimise complex systems and make predictions. AI can solve problems that are structured, repeatable and predictable but the technology cannot emulate or understand empathy – something that is uniquely specific to humans which is still intrinsic to building relationships. 

Technology shouldn’t replace humans, but work in symbiosis, it should augment people’s understanding. Furthering this thought, Antony suggested that offices and other workspaces need to catalyse human skills, leading to space becoming a service, the supply of space will too inevitably evolve. Antony touched on the retail sector, sharing that to be a success, it needs to become a destination, a center for fulfilment or fine tuned to local particularities – physical shops are used to market to consumers with the online experience tailored to retaining them.

Antony summarised his presentation with some pointers for success – connectivity, density, flexibility, productivity, wellbeing and sustainability. 

Audience poll results:
What do you think will be the most important skill to have in the real estate industry for the next ten years?
Technology - 20%
Financial - 14%
Real Estate - 10%
Operational/Asset Management - 42%
Other - 14%

Is the real estate industry in the business of selling a product or a service?
(In today's landscape)
Product - 32.5%
Service - 67.5%

(In 10 years)
Product - 10%
Service - 90%

The trend toward outsourcing business has led to smaller workforces and therefore smaller offices. Zoltan Szelyes, Head of Global Real Estate Research at Credit Suisse took to the stage to share some insights from the recently published INREV paper ‘Flexible offices call for flexible owners’ about flexible workspace and its impact on the industry. Zoltan told how offices are becoming more like hotels with a large customer service component echoing Antony’s presentation that we’re now in the age of the consumer. Flexible space is playing a growing role in office markets globally with technological innovations making it easier to create flexible office space. Perhaps more interesting to hear was that Flex space operators can be likened to liquidity providers, effectively taking on the role of maturity transformers, leasing space long-term and sub-leasing it on a short term basis.

Nathalie Borgeaud from Four Twenty Seven spoke to the audience about how extreme weather such as fire, floods and rising sea levels require us to rethink cities, buildings and transportation, sharing anecdotal references from Indonesia where it plans to relocate its capital city from Jakarta. To help us on this task, the right data can help us to specifically predict the climate change risk for specific properties and locations, and asses the risk and develop mitigation measures accordingly.

Nathalie explained that the solutions required are partly the responsibility of public institutions, so they should be involved in finding out the risks and the development of solutions, suggesting that our industry should work together in partnership with cities and urban planners to arrive at the most suitable outcomes.

Audience poll results: 
Are the properties in your portfolio already impacted by climate change (e.g sea levels rise, floods, hurricane)
Yes - 33.3%
No - 66.7%

The afternoon continued with a panel discussion moderated by Ajay Sharma and featured INREV Investor members Catriona Allen from LaSalle GPS, Johanna Strömsten from Alecta Investment Management Real Estate and Manuel Phillipe Wormer from Bayerische Versorgungskammer who discussed a number of topics including the GFC. When asked about lessons learned, Catriona expressed that appropriate diversification in real estate portfolios, good due diligence with a key team and compensation were high on the list and Johanna and Manuel agreed that experience and a deep knowledge of real estate is important for Fund Managers. Manuel also cited that the manager model has evolved from simply sourcing deal flows and compiling portfolios – now they are a full-service provider for investors.

When looking to the future, the panel saw an increase in social infrastructure funds but whether that will be real estate or infrastructure is yet unknown. Increased competition for real estate as pension funds increase their allocations and as retail investors look to invest in commercial real estate was also predicted.  

Leif Andersson founded AREIM after working for a Swedish Investor and when he didn’t necessarily match with his new boss, he decided to leave and start his own Nordic real estate fund. Leif told the audience how he loved the opportunity to build his own company, but it took persistence, a long term approach and his focus was unfaltering, ensuring that he always remained true to his purpose and values – that was key. 

Leif’s advice to the audience of Young Professionals was that they should speak up, never falter from their values but never be afraid to ask for help and advice when entering new territories and don’t take too many risks. Leif also stressed that one of the most important choices in life is who your boss is – there has to be a good click and alignment and working with the right people, people with good values is critical for a good atmosphere and culture – success is all about balance. 

Rounding off the busy day, the audience heard as Alex Edmans from the London School of Business energetically shared the business case for responsible business. The case of making money is often associated with not serving society in an ethical manner but instead Alex presented the idea that making money whilst doing good for society can be achieved.

Alex gave the example of Merck and Mectizan whose charitable contribution led to the significant improvement of river blindness around the world and as a side result people were inspired by the story and bought shares in Merck stock thus raising the share price. Alex also explained how reputational benefits can lead to attracting and retaining the best and brightest talent.

We should move away from the idea that everything a company does needs to generate a financial profit and in doing so, enables the company to do the right thing which can indirectly lead to a financial profit, but be careful as this is not always the case. Alex’s own study showed that companies who treat their employees well do better by a factor of about three and companies who adopt ESG policies outperform significantly over time.

In summary, Alex suggested that above all, a sense of purpose is the main quality necessary. Similar to Leif earlier in the day, Alex also urged the audience to stay true to their mission. 

Day two of the conference offered a local flavor and was focused on the city of Lisbon and the Portugese market beginning with a presentation by Fernando Ferreira, Regional Director and Head of Capital Markets at JLL. 

Fernando began by looking back to a time when Portugal was thinking of leaving the Eurozone but today it is the focus of many trendy publications and the hot destination where many have relocated to. There is huge demand for all kinds of real estate especially residential.

Fernando remembers a time when his agenda was empty at industry tradeshow MIPIM, but now Portugal is back on top with many investors looking to invest in the country since 2015 for a number of reasons including high yields.

The introduction of the ‘Golden Visa’ scheme and other tax incentives is also credited for encouraging foreign direct investment. When looking at what trends are evident in Portugal, Fernando shared that there is a huge demand for offices in the region and is not exempt from the Co-revolution which is also a big trend impacting the country.

Three property tours were offered to attendees to give them the opportunity to experience first hand what the Portuguese market has to offer. One group visited the LX Factory, located in the heart of the Alcântara district, a once industrial area and one of the most important manufacturing complexes in Lisbon’s history, the site has now been turned into a creative, cultural and gastronomic area. The LX Factory illustrates a wonderful convergence of the past and present.  

Another group joined a tour and presentation of the Time Out Market, one of the world’s largest gourmet food markets, a concept born in 2014 from the world-famous publishing house of the same name, Time Out, created from scratch with only the best ideas and business projects in Lisbon which can stay in the market from one week to three years. If it’s good, it goes into the magazine and if it’s great it goes into the market.  

A third group joined the work in progress site of The Creative Hub Beato and witnessed firsthand the birth of the Creative Hub Beato from startup hub builder, Factory.com. The gargantuan new campus located on the Tagus river in the east of Lisbon is a former army complex and recognised for its industrial and architectural value. The 35,000m2 distributed among 20 buildings are being renovated to house national and international entities in the areas of technology, innovation and creative industries.