Monday, August 3, 2020

UBS: "Real estate’s challenges could push investors towards farmland"

Back in the early days of this century there was real concern that the friendly neighborhood Goldman long-only-commodity-index salesman could peddle enough product to the CalPERS's and college endowments of the world to raise the cost of food.

As it turned out, Goldman was just bagging their own clients on the other side of the swaps they were offering, offering wink-wink, nudge-nudge to let the customers piggyback on Goldman's designation as a commercial hedger and thus evade commodity exchange position limits on speculators.

Well, it all fell apart for the pension funds during the Great Financial Crisis and the GS forecast of $200 oil (agriculture input) and $15 wheat and everything turned out to be nothing more than slick copy on the PowerPoint slide with about as much substance in the real world.

The corporatization/financialization of farmland on the other hand actually does have the potential to jack prices as fewer and fewer owners trend toward oligopoly status.

Here's one of the big-time players at Joe Azelby talking to PERE (Private Equity private Real Estate) via Farmlandgrab:

UBS group managing director Joe Azelby sees promising demand drivers for farmland, but the lack of 'scalable doorways' will limit large investors.
Post-coronavirus challenges to real estate’s reputation as a dependable store of value could draw more investors into farmland markets, Joe Azelby, head of real estate and private markets at UBS Asset Management, told PERE‘s sister publication Agri Investor.

“Whenever you have a crisis, it is a reminder for people to diversify more than they have,” Azelby said. “People are going to scratch their heads and say: ‘Geez, maybe I have a little too much real estate. What else is out there, that, perhaps, is not going to behave in a similar way if there are more covids to deal with in the future?’”

Azelby – who joined UBS in March 2019 after approximately one year as senior partner and head of real assets at Apollo Global Management – highlighted that the hotel and retail subsectors been particularly hard hit by covid-19. Uncertainties surrounding the potential spread of future pandemics and resulting changes in demand for office space, he said, have further clouded the outlook for some real estate strategies.

As institutional investors continue to seek “pockets of calm” amid the turmoil, farmland’s resilience during the global financial crisis and the pandemic’s immediate aftermath is likely to be top of mind, said Azelby.

“People buy real estate around the world at sometimes ridiculous prices as a place to store capital. We certainly saw that in New York – where five years ago people from all over the world were buying ridiculously large condos at ridiculously large prices.

“I just think people are going to look for other areas and places to store value and perhaps we’ll see the high-net-worth space engage in the farmland discussion.”

New opportunities
Azelby oversees more than 500 employees managing more than $100 billion in assets across 14 countries. Real estate accounts for between 80 and 90 percent of assets and revenue managed within the Real Estate and Private Markets platform, according to Azelby, who also oversees UBS’s general private equity and infrastructure investments that account for much of the remainder.

Azelby said that while UBS and other investors would like to have more exposure to food and agriculture, the market faces limitations imposed by the lack of what he called “scalable doorways.” In farmland, for example, he said UBS has limited its acquisitions to properties with very specific characteristics and most deals have ranged between $5 million and $20 million each....