JP Morgan looks for riskier property investments in Europe

Bank aims to raise ownership of 'opportunistic' property in Europe to €4b

PUBLISHED : Wednesday, 16 July, 2014, 5:08am
UPDATED : Wednesday, 16 July, 2014, 5:08am

JP Morgan Chase's asset management unit intends to quadruple its holdings of European commercial property in need of renovations or new tenants as well-occupied buildings in good condition become too expensive.

The company plans to raise its ownership of "opportunistic" properties in the region to about €4 billion (HK$42.18 billion) over three years, according to Peter Reilly, the company's head of European real estate. During that time, the New York-based investor will acquire less lower-risk, or core, real estate.

"In the next three years our buying activity will probably be 80 per cent opportunistic, whereas through 2012 it was 80 per cent core," Reilly said. "Our buy activity shifts as the capital market shifts."

Investors such as JP Morgan Asset Management, which holds around US$63 billion worth of real estate, rushed to the safety of Europe's most stable income-producing properties after the financial crisis.

Companies are now flocking to invest in riskier office buildings, shops and warehouses as prices for the safest assets in Europe climb to their highest level since 2007.

Almost 60 per cent of investors were searching for riskier properties at the end of the first quarter, an increase from 47 per cent a year earlier, according to a study by the London-based research company Preqin. The proportion of buyers who were seeking the highest quality buildings with tenants in place dropped to 35 per cent from 56 per cent a year previously.

JP Morgan Asset Management owns about €3 billion of core properties in Europe, including offices, shops and warehouses in Britain, France and Germany, Reilly said. The majority of its property holdings, about US$45.5 billion excluding real estate investment trusts, is in the United States. Europe comes second at about US$7.8 billion and Asia trails with around US$1.1 billion.

Buying properties in need of investment to reach their earnings potential is easier now because banks are more willing to sell underperforming loans tied to real estate than they had been in the aftermath of the financial crisis, he said.

"Conversations with banks are more productive today than they were a couple of years ago," when there was a big difference between asking prices and bids, Reilly said. "That should accelerate through 2015."

Banks will sell loans with a face value of €83 billion this year, 30 per cent more than last year, as they clean up their balance sheets to focus on new business, according to data compiled by PricewaterhouseCoopers.

The JP Morgan unit will focus on buying offices in large cities including Paris, Berlin, Hamburg, Munich, Frankfurt and the English cities of Birmingham and Manchester. High prices in London make it difficult to find profitable deals there, Reilly said.

"We like troubled assets in really good markets," he said. "So when you fix the asset, you've got a core property."