Dave White, Head of Real Estate Debt Strategies, and Dominic Silman, Europe Head of Debt and Value-add Capital Research and Strategy, discuss how we find opportunities and the evolution of the investment landscape over the last 15 years.

Dave White and Dominic Silman discuss our investment selection process, which combines bottom-up, on-the-ground market knowledge with top-down, macroeconomic and geopolitical analysis to identify attractive investments that meet our investment criteria.

In addition to how we identify opportunities, they cover where we are likely to invest, and how the opportunities before us have evolved over the last decade and a half.

Dave White, Head of Real Estate Debt Strategies, and Brett Ormrod, Net Zero Carbon Lead for Europe, discuss the current and future state of green lending across Europe.

While lending volumes across the market remain volatile, data shows one continuously increasing metric: the demand for green loans, which is being driven by the ever-growing sustainability requirements from both investors and sponsors.

Dave White and Brett Ormrod discuss the challenges that borrowers and investors are facing, and how we at LaSalle are navigating these dynamics. They discuss how green loans are impacting the European real estate market, what they can mean for investors’ bottom lines, and the overall opportunity not just for green loans, but for greener assets in investors’ portfolios.

A prudent person sees trouble coming and ducks.
A simpleton walks in blindly and is clobbered.
— Proverbs 22:3

King Solomon’s words of wisdom have been passed down to us for 3,000 years. They still resonate, especially in this modern translation,¹ even though the “trouble” is no longer invading Assyrians or Babylonians but the type of danger we bring on ourselves through an all-too-human combination of ingenuity, hubris and ignorance. 

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Watch any movie from the 1930s to the 1960s and you will see actors inhaling tobacco smoke with abandon. We know better now. Like the generational awareness of the harm caused by tobacco products, real estate owners have gradually become aware of the dangers lurking in certain building materials and contaminated soil. Starting in the 1960s, societies have spent fortunes cleaning up “miracle products.” Asbestos, PCBs, dry cleaning solvents, herbicides and lead pipes were all considered state-of-the-art technologies at various points in human history. None of these inventions were designed with the intention of killing people. They all started with a noble purpose – whether suppressing catastrophic fires, insulating transformers, cleaning wool suits or producing a pleasing nicotine buzz that also curbed the appetite. The “externalities” associated with societal damage from the use of these products took decades to discover and billions to eradicate. 

Greenhouse gas emissions share a common ancestry with these miracle products. Heating buildings with diesel fuels, running gas lines through city streets, producing electricity with coal-fired plants—these were all logical, economical, and sensible solutions to the problem of bringing energy to homes, businesses and buildings of all types. The industrial revolution accelerated the growth of cities and raised the quality of life for millions of people by dragging them out of rural poverty. As we now know, society’s dependence on fossil fuels creates new problems which must be dealt with. 

The recognition that miracle products can carry hidden (or not so hidden) dangers follows a predictable pattern. Here is what the step-by-step process often looks like: 

Evidence and awareness. An environmental problem often requires decades of scientific study and mountains of evidence to convince people that a change is necessary. Even as this evidence accumulates, vested interests organize counterattacks to convince society that the problem is non-existent or over-stated. Eventually the harm to human life becomes so obvious that denial becomes a “fringe position.” 

Market demand. In many cases, the process of partial “market adjustment” can begin ahead of government action. Voluntary data collection and industry-led reforms start the slow process of change. In the case of greenhouse gases, the marginal contribution of each emitter is so small, and so embedded in society, that government interventions sometimes lag market-led shifts (e.g., the adoption of LED lighting or heat pumps). 

Regulatory response. Yet, government interventions are almost always needed to accelerate and complete behavioral change to truly eliminate harm to the environment and to human life created by “externalities.” These regulations and policy responses often get pushback as competing outcomes are debated in the political arena. Economists agree that putting a price on carbon would be the most efficient and effective solution, but a market mechanism for carbon pricing requires government intervention — in the form of a carbon “tax” or to set up an emissions trading scheme. 

Benchmarks and best practices. Eventually, the rise of data benchmarks and peer group comparisons begins to shed light on who, where and how successful “treatments” are applied to any environmental problem. Engineering and laboratory science helps inform this stage of the process, as does public health or industry group data. Integration with market investment processes and decisions leads to a focus on reversing years of damage to the environment and compliance with new regulations and guidelines. At this stage, market-driven and regulatory-driven changes start to converge. 

Price integration. Feedback loops are established where type 1 errors (false positives) and type 2 errors (false negative—or overlooked problems) are exposed.² In loosely regulated situations like climate change, the efficient market hypothesis (EMH) takes hold as the change process gets partially or fully priced by consumers and producers. Economists and policy analysts favor the practice of placing a “price” on an externality to compensate society for the harm. In practice, though, compensatory payments to offset environmental damage are often decided through the courts and litigation. 

Continued market and regulatory evolution. The enforcement of tighter regulations also follows its own trajectory depending on the governance structure of a particular country or urban jurisdiction and the toxicity of the problem. The discipline of epidemiology, using population data and public health analysis, is especially helpful at this stage of refining the policy solutions. 

The Transition from “Data” to “Wisdom” 

For the de-carbonization of buildings, various markets and countries are well into Step 3 (Regulatory Response) and Step 4 (Benchmarks and Best Practices). In Europe the “theory of change” is focused more on EU-wide or national policies to promote energy disclosures through top-down regulatory solutions. In the United States, the emphasis is based more on voluntary pledges, market solutions and regulations that are based on specific local jurisdictions. In most developed countries, steps 5 (Price Integration) and 6 (Market and Regulatory Evolution) are underway, but both have a long way to go. 

The rise of real estate sustainability benchmarks (like GRESB) has accelerated in recent years. In many cases, they have expanded to include social factors and tenant well-being alongside environmental metrics. The next hurdle, though, is to establish materiality tests that infuse meaning, and determine financial impacts based on the volumes of reporting that the industry has started to produce and disclose. 

Reading through ESG reports often reveals the triumph of reporting and public relations over salience or relevance. The conjoint challenges of reducing building emissions alongside improving the well-being of building users and the surrounding communities can be obscured by data denominated in less familiar metrics like tons of CO₂ or Kilowatt hours. In time, and with experience, the emphasis will shift to what truly moves the needle on all elements of the “sustainable investing” paradigm—and which metrics give off misleading or meaningless “virtue” signals.   

Financial metrics align most closely with the “fiduciary duty” of an investor. Moreover, stakeholders have decades of experience analyzing and interpreting financial data. It will take additional time and effort to convert environmental data into financial terms or to simply raise the consciousness of how to interpret energy and emission data in its own right. (LaSalle’s work on the “Value of Green” synthesizes studies of the evidence linking sustainability metrics and financial outcomes. An update on this work is below.) 

In writing Proverbs, King Solomon gathered centuries of wisdom based on experience. In the modern world, we often believe that the steps to wisdom are built on a foundation of knowledge, information, and data. The famous “DIKW” hierarchy has been a mainstay of information sciences since the 1930s. Sustainability wisdom is still in the process of being formulated and likely requires more time to make progress. Fortunately, the foundations of this wisdom are already being put in place—first through data (the modern way to refer to many, many experiences), then information (organized and analyzed data), eventually leading to knowledge (patterns are identified and the “what” and “why” questions are answered) and finally reaching the status of accumulated wisdom (how to respond). This is a path that humans have traveled before. More lives are at stake this time around and the wisdom may not be easily agreed upon by all industries, countries and stakeholders. Nevertheless, the search for sustainability wisdom must continue and time is of the essence.  

Revisiting LaSalle’s “Value of Green”

In September 2023, LaSalle published our ISA Focus report What is the value of green? Looking at the evidence linking sustainability and real estate outcomes. The report presents a framework on how sustainable attributes of properties can be viewed as both as drivers and protectors of value, along with showcasing findings from the broader literature. We continue to maintain a Value of Green tracker, monitoring research on this subject as it is produced. Some of the findings that have surfaced since the release of our initial report are worth highlighting:

• In early 2024, CBRE reported in their UK sustainability index that efficient properties outperformed inefficient properties by close to 2% per year in terms of total return, over the course of 2023 across three major property types. The efficiency of buildings was delineated through EPC ratings.
• UBS reported in late 2023 that a green premium of 28% and 19% in price per square foot was in evidence in the New York and London office markets, respectively, when comparing office transactions based on LEED/BREEAM certifications. This premium was also established in cap rates, showing a 36 and 27 bps premium for New York and London respectively.
• MSCI published a report on price premiums for green buildings, and how they have changed over time. Looking at offices in Paris and London, a clear trend emerged from 2019 onwards showing a growing sale-price gap between offices with and without sustainability ratings. In the case of London, the gap was close to non-existent before 2019 and had since grown to 25% as of the latest reported data point in late 2022.
  

Beyond the direct links between sustainability and historical investment performance in terms of return, rent and value premiums, more signals are emerging as available data on the topic grows, and becomes increasingly forward looking:

• In 2024, JLL published in their “Green Tipping Point“ report on how the supply/demand balance is shifting in favour of sustainable offices across the globe, as tenant demand evolves. JLL projects a 70% unmet demand across 21 global office markets.
  

Beyond results based on backward-looking data, detailed case studies of investments into sustainable initiatives are being published. The JLL report “Future-Proof Your Investments“ showcased opportunities for sustainable New York offices; another example is CBRE’s report “The impact of on-site rooftop solar on logistics property values.”

Tobias Lindqvist
Strategist, Climate and Carbon Lead, London

Sources:
CBRE (March 2024) UK Sustainability Index Results to Q4 2023. CBRE
P. Torres, G. Bolino, P. Stepan (2024) The Green Tipping Point. JLL
T.Leahy (2022) London and Paris Offices: Green Premium Emerges. MSCI
P. Torres, J. del Alamo (July 2024) Future-proof your investments. JLL
D. Marina, J. Tromp, T. Vezyridis, O. Bruusgaard (July 2023) The impact of on-site rooftop solar PV on logistics property values. CBRE
O. Muir, Y. Chen, T. Metcalf et.al (Dec 2023) Green premium: Study of New York and London Real Estate finds strong evidence for a ‘green premium’. UBS

What can we learn from simulations?

The de-carbonization of buildings is taking place in a complex and ever-changing environment. It is a multi-dimensional problem replete with uncertain outcomes, regulatory change, shifting societal norms and markets, and the politicization of sensitive issues.

At the June 2024 MIT World Real Estate Forum, Professor Roberto Rigobon unveiled a “sustainability simulation” game patterned on his pathbreaking work on social preferences for the European Commission. The technique shows how the traditional economic conceit that we make “resource trade-offs” does not accurately capture how humans make decisions when faced with multi-dimensional choices.

In the simulation, the audience was given nine choices for different retrofit projects for a commercial building. Each choice resulted in simultaneous movement across three metrics that the audience had already established that they cared about — changes in NOI (profitability), CO₂ emissions, and tenant satisfaction/well-being. The cost of the projects was amortized into the NOI calculations and the other metrics were also calibrated based on actual data from the US.

The simulation showed that a knowledgeable real estate audience rarely solves just for “pure profits” at the expense of tenant well-being or CO₂ emissions. The simulation also mimicked reality—where sometimes profitability moves in synch with reduced CO₂ emissions and other times it moves it moves in the opposite direction. The simulation was designed to show how the co-movement depends on the local market and the type of de-carbonization project. Tenant well-being and CO₂ emissions could be implicitly linked to revenue when and if participants believe that occupancy, rents and capital raising are all interconnected.

Through their choices, the audience tried to optimize across all three priorities at once — leading to an interesting result that revealed their average willingness to “pay” to reduce a ton of CO₂ emissions of about $200 ton. Yet, if asked directly how much they would pay to reduce a ton of greenhouse gas coming from a building, it seems unlikely that many would have volunteered to pay that much. This finding also shows how the language of profitability and returns is much more advanced than the metrics and concepts associated with either decarbonization or tenant satisfaction. And that all these metrics are linked, but not fully integrated in the minds of real estate professionals.

Only a few participants in the game focused only on reducing CO₂ (at the expense of decent profits). And just a few focused exclusively on profitability at the expense of tenant satisfaction or CO₂ emissions. This seems like a reasonable facsimile of what enlightened investors will do — especially when they know that their actions are being disclosed. As we learn more from these simulations, it is possible that policy makers will be able to refine the mix of incentives and regulations that govern the real estate industry.

Jacques Gordon
Cambridge, Massachusetts

LOOKING AHEAD >

• As we advance through the six stages of market wisdom, sustainable features in real estate move away from purely “virtuous” and toward increasingly meaningful drivers of investment value. As noted in our ”Value of Green” report the challenge for investors is understanding where, when and how sustainability is driving performance, which is highly variable across markets and sectors. Given LaSalle’s global reach, we are well positioned to observe, learn and act to enhance and protect asset values for our clients, and gain and share wisdom in the process.
• Markets are shifting towards wider alignment with a more sustainable future, new data and findings are continuously published. At LaSalle we also focus on the data generated within our walls, linking our own initiatives driving sustainability with their associated investment outcomes, bringing our own data and experience into the DIKW hierarchy.
• Recognizing the importance of meaningful benchmarks to drive decision-making (Stage 4), LaSalle has been leading an industry initiative to develop an improved solution for decarbonization pathways in the US and Canada, which could be adopted by CRREM and others globally.  More meaningful decarbonization pathways will help investors properly measure transition risks and set targets, setting the industry up to make real progress in decarbonizing the built environment.
• Evolution over the Six Stages will likely be uneven over time, geography and investor type. This unevenness could provide investors at more advanced stages an advantage over less progressed investors. For instance, an investor who has incorporated a carbon business case into their investment process is at an advantage to appropriately price opportunities. For example, it should help investors identify attractive brown-to-green strategies.

Footnotes

¹ The Message, translated from the Hebrew scriptures by Eugene Peterson (1993-2002).

² These are all part of the learning that occurs with any “treatment hypothesis.” The science of public health provides solid evidence to weigh whether the “treatment” is helping, hurting or having no impact on the eradication of the underlying disease. In real estate, a good example of this is the gradual discovery that with certain types of asbestos, it is more dangerous to remove it than to “encapsulate” it in an existing structure. The science of “decarbonization” is still being established to determine whether, for example, the mass production of lithium batteries does as much harm as the burning of fossil fuels. For real estate and climate change, the “treatment” will likely focus on energy efficiency/ decarbonization interventions that are a combination of government penalties/incentives and voluntary actions. The effectiveness of these treatments will depend on compliance, market response, and how well interventions find acceptance through the political process.

Important Notice and Disclaimer

This publication does not constitute an offer to sell, or the solicitation of an offer to buy, any securities or any interests in any investment products advised by, or the advisory services of, LaSalle Investment Management (together with its global investment advisory affiliates, “LaSalle”). This publication has been prepared without regard to the specific investment objectives, financial situation or particular needs of recipients and under no circumstances is this publication on its own intended to be, or serve as, investment advice. The discussions set forth in this publication are intended for informational purposes only, do not constitute investment advice and are subject to correction, completion and amendment without notice. Further, nothing herein constitutes legal or tax advice. Prior to making any investment, an investor should consult with its own investment, accounting, legal and tax advisers to independently evaluate the risks, consequences and suitability of that investment.

LaSalle has taken reasonable care to ensure that the information contained in this publication is accurate and has been obtained from reliable sources. Any opinions, forecasts, projections or other statements that are made in this publication are forward-looking statements. Although LaSalle believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of assumptions, risks and uncertainties. Accordingly, LaSalle does not make any express or implied representation or warranty, and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other information set out in this publication or any further information, written or oral notice, or other document at any time supplied in connection with this publication. LaSalle does not undertake and is under no obligation to update or keep current the information or content contained in this publication for future events. LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication and nothing contained herein shall be relied upon as a promise or guarantee regarding any future events or performance.

By accepting receipt of this publication, the recipient agrees not to distribute, offer or sell this publication or copies of it and agrees not to make use of the publication other than for its own general information purposes.

Copyright © LaSalle Investment Management 2024. All rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of LaSalle Investment Management.

This article first appeared in the August 2024 edition of IPE Real Assets

With increasing regulations and more investors embedding sustainability goals into their investments, incorporating green targets into the debt component of the capital structure is becoming more common. As a result, the debt market across Europe is becoming a two-tiered market, with more green loans being issued at the same time as overall lending volumes have declined.

In this guest article for IPE Real Assets, Dave White discussed the growing appetite for these loans across Europe, and how both lenders and investors are responding to this changing landscape.

At LaSalle, we are often asked what investors in real estate debt and what borrowers of our credit solutions can expect from us.

For investors, knowing that their investment manager has successful, long-term relationships with their borrowers is a strong sign that those interactions will continue, and that attractive investment opportunities will remain available. This dynamic allows us to remain both disciplined and selective in the areas where we choose to invest capital.

For borrowers, recognizing that their credit provider has a wide range of capital solutions, and can offer competitive terms backed by certainty of execution is paramount to our success. Further, this is what drives such a high repeat borrower base and the ability to foster long-term relationships with our borrowers.

As one of the largest providers alterative credit solutions in Europe¹, we find ourselves in the enviable position of being able to truly understand how important both borrowers and investors are to the whole equation. This dynamic allows us to remain active investors in this market, highlighting our expertise in the sector.

What can real estate debt investors expect from LaSalle?

What can real estate debt borrowers expect from LaSalle?

1. Source: Real Estate Capital Europe, Summer 2023 issue

LaSalle has taken reasonable care to ensure that the information contained in this publication is accurate and has been obtained from reliable sources. Any opinions, forecasts, projections or other statements that are made in this publication are forward-looking statements. Although LaSalle believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of assumptions, risks and uncertainties. Accordingly, LaSalle does not make any express or implied representation or warranty, and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other information set out in this publication or any further information, written or oral notice, or other document at any time supplied in connection with this publication. LaSalle does not undertake and is under no obligation to update or keep current the information or content contained in this publication for future events. LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication and nothing contained herein shall be relied upon as a promise or guarantee regarding any future events or performance.

By accepting receipt of this publication, the recipient agrees not to distribute, offer or sell this publication or copies of it and agrees not to make use of the publication other than for its own general information purposes.

Copyright © LaSalle Investment Management 2024. All rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of LaSalle Investment Management.

LaSalle is one of Europe’s largest and most established investors in real estate debt, offering a variety of loan types across sectors. Learn more about this dynamic asset class, and LaSalle’s capabilities from Dave White, Head of European Debt Strategies here at LaSalle.

Dave White, Head of Real Estate Debt Strategies, Europe discusses the market in 2024 and where we are seeing opportunities for investors.

“You take the blue pill—the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill… all I’m offering is the truth.”

– Morpheus to Neo, The Matrix (1999)

We published the global chapter of the ISA Outlook 2024 on November 14, 2023, just before euphoria about a potential ‘V’-shaped property market turnaround emerged. Interest rates fell quickly as financial markets priced in several US Federal Reserve (Fed) rate cuts in 2024. For a time, it looked as though our prediction that it would take a little longer for markets to digest a renewed spike in rates would not age well.

In this Mid-Year Update, however, we look back to find an outlook with an uncanny resemblance to that of six months ago. This is not because nothing has changed, but because the mood has gone full circle. The landscape remains characterized by interest rate volatility, soft fundamentals in some markets, and gaping quality divides, but also by pockets of considerable strength. Another factor that has not changed is that financial conditions (i.e., interest rates) remain the dominant driver of the market, and that political and geopolitical uncertainties are in focus in many countries (see LaSalle Macro Quarterly, or LMQ, pages 4-6).¹

In this report, we discuss five themes we see driving real estate markets for the rest of 2024 and beyond. At our European Investor Summit in May, our colleague Dan Mahoney argued that—like Neo in the Matrix—we should take the red pill and endeavor to see the market as it is, not as we’d like it to be. Taking the red pill requires a realistic view on property values. It reveals as unlikely a return to an environment of ultra-low interest rates or uniformly benign fundamentals in the “winning” sectors.

But it does not mean that there will not be attractive investment opportunities. Unlike the bleak dystopia of The Matrix, there are many reasons for optimism, as well as signs that the coming months will come to be seen as a favorable investment vintage. That said, investing successfully will require a balance of big-picture perspective and granular discernment, and a mix of patience and willingness to take risk.

Interest rates – Still no map to the trail

Over the past year, we likened the interest rate path in most markets to a strenuous mountain trek: the relentless climb (2022), the range-bound altitude of an alpine ridge line (H1 2023), the unexpected upward turn in the trail (Q3 2023), and the mountain meadow of cooling inflation and expected rate cuts (Q1 2024). More recently, there have been upward turns in the interest rates trail whenever there have been signs of sticky inflation in the US and other key countries. 

One thing is for sure: No map exists for this trail. While interest rates have big consequences for real estate capital markets, they are extremely difficult to predict. We continue to caution investors against overconfidence in their ability to forecast the path of long-term interest rates.  

Mercifully, falling rates are not a necessary condition for a robust recovery in real estate transaction activity. Despite interest rates remaining elevated, property markets are already showing signs of finding their footing, such as renewed US CMBS issuance and resilient deal volumes in many markets and sectors.² A key reason for this is that wherever interest rates have spiked over the past two and half years, especially Europe and North America,³ real estate prices have by now adjusted downward significantly. The relativities between expected returns for real estate and those for other asset classes now look more appropriate than they have in many months; in other words, more of the market is at or near fair value.⁴ 

That said, while lower rates are not necessary for real estate capital market normalization, greater stability in rates than we have been seeing would no doubt help. Interest rate volatility is the enemy of a smoothly functioning private real estate transaction market. Excessive movement in borrowing costs during due diligence periods can lead to dropped deals and re-trades. Moreover, when rates are volatile, the conclusions of fair value models are also volatile, impacting both buyers’ and sellers’ assessments of appropriate pricing. Looking at recent trends in the MOVE index,⁵,⁶ interest rate volatility appears to be gradually easing but is still elevated relative to recent history (see LMQ page 13). 

Increasing stability in rates is welcome, but for now it is reasonable to expect continued strains in real estate capital markets that create both challenges and opportunities. Such conditions can represent favorable entry points for debt investors (lenders), distressed equity players and core investors seeking entry points below replacement

Macro – Deciphering divergence 

Over the past half-year, interest rates have been increasingly influenced by widening divergences between near-term growth, inflation and monetary and fiscal policy outlooks. Most notably, the bond yield gap between the US and other markets, especially the eurozone, has widened. US growth and inflation have surprised on the upside, in the face of softening or stability elsewhere. Markets currently expect only one Fed rate cut in 2024, down from up to four earlier in the year.⁷ Meanwhile, in early June the Bank of Canada became the first G7 central bank to cut rates since the great tightening cycle began, with the European Central Bank (ECB) following shortly after (see LMQ page 7).  

Regional groupings can obscure divergences within them. The key driver of eurozone softness is Germany (see LMQ page 23), owing to its reliance on manufacturing exports and past dependance on Russian energy. Meanwhile, the Spanish economy remains strong due to healthy consumption and tourism. Within North America, Canada’s economy is underperforming the US because the structure of its residential mortgage market makes it more exposed to higher rates.⁸ These intra-regional variations may have a range of impacts on property markets, for example by shifting the relative short-term prospects for demand and value. 

Japan and China represent long-standing divergences that persist.⁹ In China, a loosening bias remains in effect as inflation hovers at around 0%.¹⁰ In Japan, monetary policy is gradually normalizing, but so far without triggering a big increase in interest rates (at least compared to elsewhere). In March, the Bank of Japan (BOJ) abandoned negative interest rates and ended most unorthodox monetary policies, though it has since held policy interest rates at around zero. Japan’s economy becoming more “normal” is generally a positive, but interest rate differentials have pushed the yen to a 34-year low against the US dollar (see LMQ page 14), creating upside risks to inflation.¹¹ But notably, Japan remains the one major global market in which real estate leverage remains broadly accretive to going-in yields. 

Aside from reinforcing the potential benefits of diversification, what do these divergences mean for investors? Mechanically, any unexpected relative softening of interest rates should, all else equal, be beneficial for relative value assessments of real estate in that market. But firmer rates in the US have predictably come alongside a stronger US dollar. This points to practical limits to global monetary policy divergences; central bankers are keenly aware that weaker currencies come with inflationary risks. Moreover, it is worth asking how persistent macro divergences will be; current divergences are rooted in timing differences of expected rate cuts, rather than an anticipated permanent disconnect. 

Renewed cyclicality — Ride the (supply) wave

For several years, secular themes and structural shocks have dominated the trajectories of global property markets. But there is a clear cyclical pattern reemerging in the form of a pronounced upswing in vacancy across global logistics markets, and in US apartments. The return of cyclicality in those favored sectors is having significant impacts on their near-term prospects.  

The softening trend is not new. In the ISA Outlook 2024, we identified hot sectors “coming off the boil.” Part of this was down to normalizing demand levels, but elevated new supply was also a key driver. As expected, the softening we observed has continued to deepen, leading to outright rent declines in certain markets, especially for apartments in US sunbelt metros.  

Softening fundamentals are not to be ignored, but we recommend investors to have the conviction to “ride the wave” of excess supply. Wide variation in supply levels at the market and submarket level means that investors with granular market data and the discipline to incorporate it into their market targeting processes should be positioned to select the most attractive markets and submarkets. 

Moreover, the forces that create cycles sow the seeds of their own reversal; we expect the current supply wave to moderate soon, as evidenced by sharply falling construction starts (see LMQ page 25). Many of the projects being completed today broke ground when credible exit cap rate assumptions were several hundred basis points lower than today. Higher interest rates upended development economics; far fewer new developments can now be justified on today’s mix of land prices, construction costs and financial conditions. 

Finally, investors should be prepared to think about cash flows in both real and nominal terms. When cooling nominal rental growth comes alongside cooling inflation, as it does today, it is possible for that to be consistent with solid real rental growth, depending on the relative magnitude of each. 

The next chapters in secular change

Beyond the reassertion of supply cycles in some markets, there is an evolving mix of secular stories that deserve attention. Some of these are so long-standing that they could almost be considered constants. These include structural shortages of housing in most of Europe, Canada and Australia, as well as the widespread changing definition of core real estate in favor of more operational niche sectors and sub-types.¹² We continue to be strong advocates for investment in undersupplied living sectors, and for participating in the institutionalization and growth of niche sub-sectors such as single-family rental (SFR) and industrial outdoor storage (IOS). 

More dynamic themes that deserve a closer look include the stabilization of retail real estate and divergent office investment prospects: 

• Rebalanced retail — In much of the world, the various sub-sectors of retail are on firmer ground than they have been in years. This owes to a nearly decade-long process of rebalancing, supported by normalizing post-pandemic demand trends and the removal, through demolition or irrelevance, of uncompetitive retail inventory. We have found retail assets to be some of the most stable performers in our portfolio in recent quarters. While the consumer mood is bifurcated between healthy higher-end households and lower-income households struggling with inflation’s hit to real spending power, physical retail has proven its enduring role in serving both convenience and experiential shopping. We are constructive on selective investment in several retail sub-types, particularly European outlet centers, top Canadian regional malls, and select open-air centers in the US. 

• All-over-the-map office — The office sector is quite literally “all over the map”, with huge variation in outlook depending on geography, ranging from Seoul, South Korea, where office market conditions are currently tighter than nearly any other market/sector combination globally, to the many North American office markets where vacancy rates are well into double digits. We stand by our long-held views¹³ on the widely varying prospects for global office markets, with Asia-Pacific markets (ex-Australia and China) having the best near-term outlook, US markets having the worst, and Europe in between. One office sector theme that deserves special mention is the increasingly compelling case for investment in super-prime offices in a handful of key European central business districts. We see the conditions for a substantial shortage of top-quality space several markets, which should lead to substantial rent spikes for the best positioned assets. 

Other key secular themes driving investment opportunities today include the implications of artificial intelligence (AI) adoption for data center demand, student mobility for student accommodation in Europe and Australia and aging for senior housing. 

Don’t wait for the “all clear” 

Past experience of real estate cycles suggests that the best investment opportunities tend to arise in periods marked by significant uncertainty, volatility and pessimism, but also when early signs of improvement and stabilization are present—in other words, moments similar to today’s environment. Experience also reinforces that it is nearly impossible to time the market, so it is best to be selectively active throughout the cycle. By the time the “all clear” signal is sounded after a market crisis, it is too late to achieve the best risk-adjusted returns. 

That said, “red pill” thinking means we must recognize that the coming capital market rebound is unlikely to be as sharp as it was after the Global Financial Crisis (GFC), given that central banks are unlikely to usher in ultra-loose policy. Seeing the market as it is requires accepting the likelihood that interest rates could remain sticky, and a realistic view of near-term fundamentals as a wave of supply impacts some sectors.  

Footnotes

¹ Also see our ISA Briefing, “Elections everywhere, all at once: Geopolitics and risk”, April 2024. In that note, we highlighted the various sources of political uncertainty this year and outlined how we recommend investors consider these risks. At the time of writing, political developments are particularly salient for short-term movements markets in France and the UK, given elections that have been called in those countries.
² Source: MSCI Real Capital Analytics and Trepp
³ Japan and China are key exceptions that we cover in greater depth under the “deciphering divergence” header.
⁴ Of course, there is considerable variation embedded in this and any assessment of fair value. As always, the devil is in the detail on the assumptions that go into expected and required returns; at LaSalle, specific fair value inputs and conclusions remain a proprietary output.
⁵ The Merrill Lynch Option Volatility Estimate (MOVE) is a market-implied measure of volatility in the market for US Treasuries. It calculates options prices to reflect the expectations of market participants on future volatility. Observation made as of June 24, 2024.
⁶ Source: Bloomberg as of June 26, 2024.
⁷ For more discussion of the Canada-US divergence and the consequences of mortgage rate resets, see our ISA Briefing, ”The impact of residential mortgage resets”.
⁸ For more detailed discussion of the unique factors in the Japanese and Chinese macro environment, see our ISA Briefing, “Key economic questions for China and Japan”.
⁹ Source: Oxford Economics; Gavekal Dragonomics as of June 26, 2024.
¹⁰ Economic theory suggest that weak currency may contribute to inflationary forces because it pushes up the cost of imported goods.
¹¹ See our PREA Quarterly article on “The Changing Definition of Core Real Estate” for a discussion of how the characteristics considered desirable in core properties is moving from traditional metrics like lease length, to observed qualities like the stability of cash flows. This shift elevates the appeal of niche sectors sub-sectors versus traditional sectors such as conventional office.
¹² See our ISA Focus report “Revisiting the future of office”, published March 2023.

Important notice and disclaimer

This publication does not constitute an offer to sell, or the solicitation of an offer to buy, any securities or any interests in any investment products advised by, or the advisory services of, LaSalle Investment Management (together with its global investment advisory affiliates, “LaSalle”). This publication has been prepared without regard to the specific investment objectives, financial situation or particular needs of recipients and under no circumstances is this publication on its own intended to be, or serve as, investment advice. The discussions set forth in this publication are intended for informational purposes only, do not constitute investment advice and are subject to correction, completion and amendment without notice. Further, nothing herein constitutes legal or tax advice. Prior to making any investment, an investor should consult with its own investment, accounting, legal and tax advisers to independently evaluate the risks, consequences and suitability of that investment.

LaSalle has taken reasonable care to ensure that the information contained in this publication is accurate and has been obtained from reliable sources. Any opinions, forecasts, projections or other statements that are made in this publication are forward-looking statements. Although LaSalle believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of assumptions, risks and uncertainties. Accordingly, LaSalle does not make any express or implied representation or warranty, and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other information set out in this publication or any further information, written or oral notice, or other document at any time supplied in connection with this publication. LaSalle does not undertake and is under no obligation to update or keep current the information or content contained in this publication for future events. LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication and nothing contained herein shall be relied upon as a promise or guarantee regarding any future events or performance.

By accepting receipt of this publication, the recipient agrees not to distribute, offer or sell this publication or copies of it and agrees not to make use of the publication other than for its own general information purposes.

Copyright © LaSalle Investment Management 2024. All rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of LaSalle Investment Management.

This article first appeared in the June 2024 edition of PERE

LaSalle’s Dan Mahoney sat down with peers from across the industry to discuss the state of the UK real estate market.

UK real estate’s rocky road to recovery

After a period of political and economic turbulence, not to mention real estate market paralysis, participants in PERE’s UK roundtable anticipate calmer waters ahead, writes Stuart Watson

For the participants in this year’s PERE UK roundtable discussion, certainty is a welcome thing, following as it does a prolonged period of political turbulence that saw the UK withdraw from the European Union, combined with both the covid-19 pandemic and the global supply chain and inflation shocks that disrupted the UK real estate investment market.

Over the last several years, we have seen an increase in the number of institutional investors around the world interested in adding real estate debt to their portfolios.¹ In some instances, this is to replace an allocation to traditional fixed income, while in others it is both an enhancement and a way to further diversify their current level of real estate holdings.

Real estate debt versus traditional fixed income

Real estate debt differs from traditional fixed income investments in a variety of ways, primarily through collateralization, income generation, differing risk factors, the potential for securitization and its direct relationship to underlying real estate assets. In the same way that investors looking for reliable income streams and relative stability across a number of fixed income products such as government bonds or corporate credit, they can also turn to real estate debt investments.

One key differentiator for the asset class is that it is typically secured by tangible collateral in the form of real estate. Further, real estate credit investments benefit from attractive positions within a capital structure, benefitting from a subordinated first-loss position from equity, and also from negative control structures which give lenders an ability to proactively protect capital in a downside scenario. In contrast, traditional fixed income investments such as corporate or government bonds are usually unsecured and rely solely on the creditworthiness of the issuer.

For many institutional investors, income generation is a key objective and something that real estate debt investments can generate primarily through interest payments on the loan. These interest payments are often higher than on traditional fixed income investments such as sovereign or investment-grade corporate bonds. Additionally, real estate debt may also offer the potential for additional income through loan origination and exit fees, or in some instances, profit participation. Like other investments in any asset class, real estate assets are subject to market fluctuations and economic cycles. There are, however, additional property-specific risks that investors should take into consideration. These include factors such as underlying occupancy and cash-flow drivers as well as capital markets. Investors should also consider the wider macroeconomic and credit-risk considerations that investors in listed fixed income must factor into their decision making. Lending against property embeds the possibility of active takeovers, also known as workouts, requiring hands-on asset management expertise. 

In some instances, real estate debt can be securitized, meaning loans are packaged together and sold as securities in the market. This allows investors to gain exposure to real estate debt through mortgage-backed securities (MBS) or collateralized debt obligations (CDOs). Traditional fixed income investments, on the other hand, are typically traded as individual bonds or included in bond funds.

Lastly, real estate debt investments are directly tied to specific properties or real estate platforms. The performance of the underlying property and its cash flows can impact the value of the debt, along with a borrower’s ability to repay it. Traditional fixed income investments are generally linked to the creditworthiness and financial health of the issuer, without a direct connection to specific underlying assets.

So why should institutional investors consider real estate debt?

As with any other asset class, real estate debt has its own unique set of attributes which, as part of a diversified, risk-adjusted portfolio, may provide investors with compelling reasons to include it within their overall strategy.

Key benefits may include: 

• Stable income generation: Real estate debt investments can offer institutional investors stable, predictable income streams. Fixed income from interest payments on real estate loans provides a source of reliable cash flow, which can help insurance companies meet their obligations to policyholders or help pension schemes ensure that they have enough cash on hand to meet near-term pension payments. 
• Risk-adjusted returns: Historically, real estate debt investments have provided attractive risk-adjusted returns. Investments in senior debt, for example, typically offer relatively lower risk compared to equity investments, while still providing competitive yields. This can be particularly appealing to pension schemes that prioritize stable returns and capital preservation. 
• Liability matching and a long-term investment horizon: Pension schemes and insurance companies both have long-term obligations to pay future benefits. Real estate debt investments, with their typically longer durations and cash flow characteristics, can align well with these long-term liabilities. By matching the duration and cash flows of their investments with their obligations, pension plans can better manage their long-term funding requirements. Similarly, insurance companies typically have long-term investment horizons and investments with longer durations are often well suited to their needs. Real estate debt investments, with their longer repayment terms, can align well with the long-term nature of both kinds of liabilities, allowing for assets and liabilities to be more effectively matched. 
• Diversification: Investing in real estate debt can help institutional investors to diversify their portfolios. By including real estate debt alongside other asset classes such as stocks, bonds, and even real estate equity, they can spread investment risk across different markets and sectors, reducing the overall volatility of their portfolio. 
• Risk mitigation and capital preservation: Real estate debt investments are typically secured by tangible collateral in the form of real estate. This collateral can help provide a level of protection as lenders typically have the ability to enforce, which serves as a buffer against defaults and reduces the risk of principal loss compared to unsecured investments. 
• Regulatory considerations: Some institutional investors, particularly insurance companies, often face regulatory requirements related to capital adequacy and risk management. Real estate debt investments, particularly senior debt, are typically treated favorably under such regulatory requirements, providing capital efficiency to investment portfolios. 

As always, it’s important that real estate debt, like any other asset class, is considered as a component part of an overall portfolio of investments constructed with the underlying objectives of the investor in mind. When properly integrated into a portfolio, real estate debt investments have the potential to offer institutional investors the opportunity to generate stable income, diversify their portfolios, align their investments with long-term liabilities, protect against inflation, target attractive risk-adjusted returns and, in some cases, adhere to regulatory requirements. 

¹ INREV Investment Intentions Survey, 2017 – 2024

This publication does not constitute an offer to sell, or the solicitation of an offer to buy, any securities or any interests in any investment products advised by, or the advisory services of, LaSalle Investment Management (together with its global investment advisory affiliates, “LaSalle”). This publication has been prepared without regard to the specific investment objectives, financial situation or particular needs of recipients and under no circumstances is this publication on its own intended to be, or serve as, investment advice. The discussions set forth in this publication are intended for informational purposes only, do not constitute investment advice and are subject to correction, completion and amendment without notice. Further, nothing herein constitutes legal or tax advice. Prior to making any investment, an investor should consult with its own investment, accounting, legal and tax advisers to independently evaluate the risks, consequences and suitability of that investment. LaSalle has taken reasonable care to ensure that the information contained in this publication is accurate and has been obtained from reliable sources. Any opinions, forecasts, projections or other statements that are made in this publication are forward-looking statements. Although LaSalle believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of assumptions, risks and uncertainties. Accordingly, LaSalle does not make any express or implied representation or warranty and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other information set out in this publication or any further information, written or oral notice, or other document at any time supplied in connection with this publication. LaSalle does not undertake and is under no obligation to update or keep current the information or content contained in this publication for future events. LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication and nothing contained herein shall be relied upon as a promise or guarantee regarding any future events or performance. By accepting receipt of this publication, the recipient agrees not to distribute, offer or sell this publication or copies of it and agrees not to make use of the publication other than for its own general information purposes.

Copyright © LaSalle Investment Management 2024. All rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of LaSalle Investment Management. GL001731MAY25

This article first appeared in the May 2024 edition of PERE

LaSalle’s Dave White sat down with peers from other leading alternative credit providers across Europe to discuss the state of real estate debt across the continent.

Opportunities are slow to unfold in European real estate debt

A golden era for alternative real estate lenders has so far failed to get underway. But there are signs the machinery is becoming unclogged, writes Judi Seebus

A year ago, alternative real estate lenders in Europe were convinced they were on the cusp of a golden age. During PERE’s European debt roundtable discussion in March 2023, participants spoke of a “huge” opportunity ahead to take advantage of a potential shortfall in refinancing funds for maturing loans amid a potential retrenchment from traditional lending sources. “I have seldom been this excited to be investing in debt,” said one participant.

Report Summary: Physical climate risk data can be a powerful tool for managing asset and portfolio risk and returns. Learn what strategies leading firms are using to manage physical climate risks and navigate market challenges. The latest report from the Urban Land Institute and LaSalle Investment Management builds on their previous report, How to Choose, Use, and Better Understand Climate Risk Analytics, to describe how leading firms are leveraging physical climate-risk data in underwriting practices. With insight into asset- and portfolio-level risk becoming increasingly easy to obtain, new challenges lie in effective interpretation and integration of information into investment practices. Relying on research and interviews with industry leaders, this report provides a nuanced exploration of this emergent issue.

Read the report on the ULI’s Knowledge Finder

Physical Climate Risks and Underwriting Practices in Assets and Portfolios is structured into three sections, each addressing different aspects of the industry’s response to climate-risk data:

Section 1. Explore the current state of the industry, finding that:

• Leading firms actively coach their teams on physical risk.
• Regulatory trends affect, but do not motivate physical risk assessment.
• Different geographies approach physical with their own level of urgency.
• Investment managers tend to focus on fund risk, capital providers on portfolio risk.
• Tools to understand and price physical risk are still in a nascent stage of development.

Section 2. Examines the application of climate data in decision making. Key findings include:

• Aggregate physical risk is a screening tool; individual hazard risk is actionable information.
• Climate value at risk remains opaque; the utility of the single number offers value but needs increased transparency.
• Atypical hazard risk (e.g., flood in a desert) merits increased attention.
• External consultants can frequently fill skill gaps, especially for firms with less in-house expertise.
• While no predominant timeframe or Representative Concentration Pathway (RCP) emerged as industry standard, the 2030 and 2050 benchmarks were the most commonly referenced time horizon.

Section 3. Assess the impact of physical climate risk on acquisition, underwriting, and disposition practices; finding that:

• Leading firms start with a top-down assessment of physical risk.
• Market concentration of physical risk is analogous to other concentration risks—a nuanced analysis is required.
• Capital expenditure for resilience projections is a key forecast but rife with uncertainty.
• Local-market climate mitigation measures are important to understand but difficult to forecast.
• Exit cap rate discount for estimated physical risk is an increasingly commonly used tool, frequently 25 to 50 basis points.
• Firms infrequently disclose physical risk but the market needs increased transparency.

This publication does not constitute an offer to sell, or the solicitation of an offer to buy, any securities or any interests in any investment products advised by, or the advisory services of, LaSalle Investment Management (together with its global investment advisory affiliates, “LaSalle”). This publication has been prepared without regard to the specific investment objectives, financial situation or particular needs of recipients and under no circumstances is this publication on its own intended to be, or serve as, investment advice. The discussions set forth in this publication are intended for informational purposes only, do not constitute investment advice and are subject to correction, completion and amendment without notice. Further, nothing herein constitutes legal or tax advice. Prior to making any investment, an investor should consult with its own investment, accounting, legal and tax advisers to independently evaluate the risks, consequences and suitability of that investment.

LaSalle has taken reasonable care to ensure that the information contained in this publication is accurate and has been obtained from reliable sources. Any opinions, forecasts, projections or other statements that are made in this publication are forward-looking statements. Although LaSalle believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of assumptions, risks and uncertainties. Accordingly, LaSalle does not make any express or implied representation or warranty, and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other information set out in this publication or any further information, written or oral notice, or other document at any time supplied in connection with this publication. LaSalle does not undertake and is under no obligation to update or keep current the information or content contained in this publication for future events. LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication and nothing contained herein shall be relied upon as a promise or guarantee regarding any future events or performance.

By accepting receipt of this publication, the recipient agrees not to distribute, offer or sell this publication or copies of it and agrees not to make use of the publication other than for its own general information purposes.

Copyright © LaSalle Investment Management 2024. All rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of LaSalle Investment Management.

There are many examples of ex ante predictions of elections’ investment implications having been overstated. For instance, leading up to the 2016 US presidential election, there were widespread predictions that the US economy would be significantly negatively impacted by Donald Trump’s anti-immigration and protectionist stance were he elected.² In the event, equity markets rebounded strongly after a short-lived hit and the US economy proved resilient to the changes in rhetoric and policy that came with a new president.³

Looking ahead to the US elections later this year, almost certainly a rematch between Biden and Trump, coverage of the candidates’ differences should be accompanied by awareness of their similarities. Both candidates seek to prioritize domestic production, which could lead to greater levels of on- or near-shoring of supply chains.⁴ Moreover, election prediction odds (see LMQ page 6) suggest divided control of the two houses of Congress and the presidency is likely; divided government has typically been associated with relative stability in domestic policy, which is generally positive for markets.⁵ Both of these factors — at least in isolation — point to the potential for news cycle hype to overstate long-term market impacts of this particular election.

2. Consider an asset’s “geopolitical beta.”

Financial theory tells us that systematic risks are undiversifiable.⁶ Systematic factors are those with significant, far-reaching implications that affect the price of all assets. But financial theory also entertains that different assets may have different sensitivities to the same set of factors; an asset’s “beta” signifies the responsiveness of its price to a given factor. This is a useful way to think about an investment’s sensitivity to political and geopolitical events. For example, a property in a metro area whose economy is heavily driven by government spending would likely have a high sensitivity to political changes. Another example could be that a property located in the Baltic States, ex-Soviet countries on the border with Russia, is likely to be especially sensitive to developments concerning relations between Russia and the West. Investors should be mindful of assets’ expected sensitivities to geopolitics, whether assessed empirically or, as is more often the case given a lack of data, estimated through intuition.

3. Avoid excessive focus on catastrophic risks.

Systemic risks go beyond systematic factors; they involve severe shocks that have the potential to re-align entire markets in unpredictable ways. An example of such an extreme event is the remote but non-negligible potential that today’s so-called “proxy wars”⁷ escalate into a broader active conflict between great powers.⁸ The challenge of incorporating such eventualities into investment decision making is not only estimating appropriate probabilities that such events may occur, but establishing ideal strategic responses should they do so. Catastrophic shocks are exceedingly rare and have the potential to create winners and losers in asset markets that are difficult or impossible to predict.⁹ It may be more fruitful for investors to focus on more incremental — and more likely — eventualities that have the added benefit of being easier to model. 

4. Do not neglect local political risks.

Media coverage naturally tends to focus on the national and trans-national arenas, but local political developments can be especially impactful for real estate investments. Such issues can fly under the radar, especially given many of the most relevant ones are only of interest to a specialist audience. For example, changes in policy around topics like the planning process, property taxes and transfer taxes (a.k.a. stamp duty) can have direct, measurable and immediate impacts on property cash flows and thus values. The distraction of the bright shiny lights of global geopolitics should not be allowed to excessively overshadow the critical local issues that impact real estate. 

5. Practice diversification but engage in “pattern recognition.”

To a certain extent, political risks can be managed through diversification. This is especially true when they involve isolated events that impact one country or subnational division such as a specific city, province or state. But often political events are part of a broader arc with potentially far-reaching consequences. A smattering of small seeds can grow from obscurity into a thicket. Nothing illustrates this better than the rise of populism, nationalism and protectionism around the world, themes set to dominate elections this year and beyond. The very notion of “globalized nationalism” may sound like an oxymoron, but it has become a fact.¹⁰ While diversification is an essential portfolio construction concept that helps manage many types of risk, including political risk, care must be taken to recognize when what may appear to be “specific” risks are part of a broader pattern that is difficult to “diversify away.”

6. Conduct “what if” exercises around potential impacts.

Geopolitical and political risks are difficult to incorporate into traditional financial analysis. We find that thinking through scenarios can be helpful in identifying investment themes that may emerge from geopolitical trends. These can point to strategies to avoid — as well as potential new ones to pursue. The “Looking Ahead” section of this note expands on some of the key themes we have been tracking. 

As geopolitical events are difficult to control and plan for, one may conclude, similarly to that same protagonist in the Everything Everywhere film, that “nothing matters.” But uncertainty is no excuse for ignoring geopolitical risks. We do stop short of directly feeding geopolitical themes into our formal risk management program, where the focus is on the specific risks that can actively be managed for our clients.¹¹ However, it remains important to observe and understand macro conditions from a holistic perspective. The work done in our regional research teams — particularly that focused on capital markets, the signals that foreshadow potential inflection points and the local political themes that impact real estate — is critical to this effort. 

Footnotes

¹ LaSalle analysis of data from Time and our proprietary investable universe estimates. See LMQ page 5 for more detail.

² Sources: “What do financial markets think of the 2016 election?” Brookings Institution paper, Wolfers and Zitzewitz, 2016. The article predicted that “a Trump victory would trigger an 8-10% sell-off”. See also “The Consequences of a Trump Shock,” a Project Syndicate article by Simon Johnson, 2016. He predicted Trump’s election would “likely cause the stock market to crash and plunge the world into recession.”

³ On the news of the 2016 election result, Standard & Poor’s 500-stock index initially fell 5% but ended the day up more than 1%, according to Refinitiv. The US avoided a recession until the emergence of the COVID-19 pandemic, according to Oxford Economics.

⁴ Source: “Biden vs Trump: Key policy implications of either presidency,” Economist Intelligence Unit, 2023.

⁵ Sources: “What to Expect From Divided Government.” PIMCO article, Cantrill, 2022. According to the article, “the equity markets historically have tended to do well in years of split government.”

⁶ Source: The Handbook of Risk Management: Implementing a Post-Crisis Corporate Culture. P. Carrel, 2012.   “Systematic or market risk refers to the inherent danger present throughout the entire market that cannot be mitigated by diversifying your portfolio. Broad market risks include recessions, periods of economic weakness, wars, rising or stagnating interest rates, fluctuations in currencies or commodity prices, and other ‘big-picture’ issues like climate change. Systematic risk is embedded in the market’s overall performance and cannot be eliminated simply by diversifying assets.”

⁷ According to the Oxford Dictionary, “proxy wars are the replacement for states and non-state actors seeking to further their own strategic goals yet at the same time avoid engaging in direct, costly, warfare.” Various observers have argued that the Russia-Ukraine and Israel-Gaza conflicts are proxy wars. For example, see “IKs the ware in Ukraine a proxy conflict?” Kings College London report, Hugues (2022).

⁸ According to a research brief by RAND: “Great power wars — conflicts that involve two or more of the most powerful states in the international system. These have historically been among the most consequential international events.”

⁹ Source: “What a third world war would mean for investors,” The Economist, 2023. The article highlights the virtual impossibility of positioning an investment portfolio to outperform through prior world wars, even if the investor had correctly predicted that these conflicts would occur.

¹⁰ For further discussion of the global spread of nationalism, see “How cynical leaders are whipping up nationalism to win and abuse power”, The Economist, 2023; “Demonizing nationalist parties has not stemmed their rise in Europe,” The Economist, 2022; “The new nationalism,” The Economist, 2016.

¹¹ We do, however, utilize tools that correlate to geopolitical risk. For example, the JLL Global Real Estate Transparency Index (GRETI) supports our monitoring of evolving investment conditions around the globe. Whilst the model does not explicitly consider political risk, the two are inexplicably linked through the inclusion of a number of governance and regulation data points.

¹² Source: “A global economic policy uncertainty index from principal component analysis,” Finance Research Letters, Peng-Fei Dai, 2019.

¹³ Source: “What are the impacts of the Red Sea shipping crisis,” J.P. Morgan, 2024.

¹⁴ Source: “The Great Rewiring: How Global Supply Chains Are Reacting to Today’s Geopolitics,” Center for Strategic & International Studies, 2022.

¹⁵ Sources: “The business costs of supply chain disruption,” Economist Intelligence Unit, 2021 and “Why Deglobalization Makes US Inflation Worse,” Project Syndicate, Moyo, 2022.

This publication does not constitute an offer to sell, or the solicitation of an offer to buy, any securities or any interests in any investment products advised by, or the advisory services of, LaSalle Investment Management (together with its global investment advisory affiliates, “LaSalle”). This publication has been prepared without regard to the specific investment objectives, financial situation or particular needs of recipients and under no circumstances is this publication on its own intended to be, or serve as, investment advice. The discussions set forth in this publication are intended for informational purposes only, do not constitute investment advice and are subject to correction, completion and amendment without notice. Further, nothing herein constitutes legal or tax advice. Prior to making any investment, an investor should consult with its own investment, accounting, legal and tax advisers to independently evaluate the risks, consequences and suitability of that investment.

LaSalle has taken reasonable care to ensure that the information contained in this publication is accurate and has been obtained from reliable sources. Any opinions, forecasts, projections or other statements that are made in this publication are forward-looking statements. Although LaSalle believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of assumptions, risks and uncertainties. Accordingly, LaSalle does not make any express or implied representation or warranty, and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other information set out in this publication or any further information, written or oral notice, or other document at any time supplied in connection with this publication. LaSalle does not undertake and is under no obligation to update or keep current the information or content contained in this publication for future events. LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication and nothing contained herein shall be relied upon as a promise or guarantee regarding any future events or performance.

By accepting receipt of this publication, the recipient agrees not to distribute, offer or sell this publication or copies of it and agrees not to make use of the publication other than for its own general information purposes.

Copyright © LaSalle Investment Management 2024. All rights reserved. No part of this document may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of LaSalle Investment Management.

After a brief, pandemic-induced interruption, in-person learning in Europe is back with more students enrolled than at any point in history. Higher education participation rates in the European Union have steadily risen across recent years, reaching an all-time high of 36% for 20-24 year-olds¹ in 2021/22, with the same proportion recorded for the UK in 2023.² A total of 18.5 million students were studying in the EU as of the 2021/22 academic year, with a further 2.9 million in the UK, having grown by 8% and 20%, respectively, over the previous five years.³

Demand for PBSA varies by profile of student. While domestic students are still crucial as a source of demand, particularly in markets where few students commute from home to study, international students are far more likely to reside in PBSA than domestic students (60% more likely to do so in the UK, as an example⁴). As shown in the chart below, international student mobility has been on a clear growth trend in recent years, with 2021/22 seeing a record number of foreign students in the EU and UK. European students studying outside their home countries elsewhere in Europe is a longstanding feature of the market, facilitated by freedom of movement within the EU, well-established student exchange programs, the rise of English-language courses and Europe’s dense geography.

A key driver of growth has been students from outside Europe. Europe has an outsized number of highly ranked universities relative to its size,⁵ a prevalence of English-language courses (which are increasingly no longer limited to the UK and Ireland) at a comparatively cheaper cost of tuition and living compared to North America.⁶ These attributes taken together can explain the sharp rise in non-EU students studying in the bloc, whose numbers have grown 31% since 2016.⁷ In the UK, the growth has been even faster, at 59% over the same period.⁸

That said, there are demand-side risks to be mindful of. The demographic outlook for Europe is mixed; forecasts for some countries such as the UK, Spain and Sweden show a demographic ‘bump,’ with the number of university-aged people growing ahead of national population levels. However, in other nations, numbers are forecast to be broadly flat (France) or negative (Germany and the Netherlands). This suggests uneven growth in demand for higher education going forward.⁹  

This mixed demographic outlook will mean greater reliance on international student demand, but there are tentative signs that may also be facing some headwinds. A recent policy change in the UK has removed the right to visas for international students’ family members.¹⁰ For now, this change represents tinkering around the edges and is unlikely to have a major impact on demand. It does, however, indicate a directional change in policy aimed at restricting overseas student numbers, presumably in a bid to bring down immigration figures. Such policy changes may incrementally dissuade would-be foreign students from studying in the UK, though demand may shift elsewhere, potentially to the benefit of other European countries. Despite such risk factors, the overriding view is one of positivity for higher education demand in Europe and therefore PBSA.   

Supply factors

European student housing should be viewed within the wider context of the region’s housing market. Europe is currently facing a long-term, persistent housing shortage. Housing scarcity is not limited to major gateway cities, but is also the reality within mid-sized cities and even smaller university towns. Since 2010, Europe has built homes at a rate only 40% below pre-GFC levels,¹¹ contributing to rising rents, increasing house-price-to-income ratios and worsening access to suitable housing. Demand for rental housing in cities remains robust, supported by long-term trends of immigration, urbanization and declining home ownership rates; as such, the imbalance between supply and demand is now fully entrenched.¹²  

Students are, like all participants in the housing market, at the mercy of housing supply and demand. Shortages have fed through to the student market, with students finding accommodation increasingly unaffordable. Over the past two years, this has led to sharp growth in PBSA rents, with several UK cities reporting year-over-year growth in the high teens for 2023, and other markets experiencing growth well ahead of previous levels.¹³ The lack of supply is also leading to students being housed increasingly in unsuitable conditions; stories from the UK of students living in hotels or in completely different cities over an hour travel from campus are a clear symptom of insufficient student housing stock. 

New investment in the sector should contribute to resolving the imbalance, but it will be a major challenge to fully close the wide gap between supply and demand. While there are nuances between markets, rising construction and development financing costs are making the delivery of new schemes less economical, evidenced by a sharp decline in the number of residential permits issued in several countries over the past year.¹⁴ Furthermore, restrictive planning laws and burdensome safety regulations are lengthening the time it takes for projects to be realized.

These factors inform our positive outlook on the rental housing market in Europe, which carries over into PBSA. The imbalance between supply and demand will likely persist and even worsen, driving very low vacancy and supporting strong rental growth for owners of residential and student housing real estate, or those who can deliver new schemes in those sectors. 

Regulation haven

Regulations in Europe can act as a handbrake for residential rents, as we set out in our ISA Briefing, Controlling Interest: Keeping tabs on residential regulations. In nearly all continental European rental markets, rents cannot be increased annually at the landlord’s discretion, with rental levels for in-place tenants typically linked to a backward-looking index. During the recent ‘great reflation’ period, this has meant income from many rented residential properties did not keep pace with inflation. But student housing stands out from more traditional rental housing investments as having a cash flow profile far less impacted by the growth-muting tendencies of regulation.

In part, this is because PBSA often faces less regulation or stands outside of regulatory systems altogether. Students’ nature as transient, temporary residents means that their needs are rarely prioritized by local politicians, particularly compared to those of permanent residents. They typically only stay in a city for a few years, do not have dependents and their rental obligations often come with implicit or explicit parental guarantees. This means that PBSA is targeted for rent controls far less often than the wider rental market. Moreover, zoning and classifications for student accommodation are often distinct from standard rental housing, exempting it from regulations that limit absolute rent levels or restrict annual rental increases. Moreover, regulatory requirements on minimum unit sizes or lease lengths usually do not apply. 

Even where regulated, PBSA benefits from its relatively short duration of tenancy. Given the vast majority of students study for 3-4 years, there is far greater annual turnover of tenants compared with the wider residential market. Faster turnover allows for landlords to more effectively mark rents to market levels. This means PBSA rents may better keep pace with inflation, even in jurisdictions where regulations do apply to the sector.  

Increasingly mature

The increased maturity of student accommodation is another factor in its favor. The UK is clearly ahead of the rest of Europe in this regard, with a deep, liquid investment market, publicly traded REITs and a large number of established specialist operators. The sector’s wide acceptance from both tenants and investors means that we would consider it a ‘Core’ sector on our ‘going mainstream’ framework, as detailed in our ISA Portfolio View. Elsewhere in Europe the sector is considered more niche, but its growing acceptance means we would consider it ‘Near-Core’ on the same framework. Investment figures support the observation of a varying level of maturity for the sector—UK PBSA has made up 66% of investment volumes annual on average since 2014, despite the EU having 6.4 times the number of students.¹⁵

Over time, we expect this to change; the opportunity for investors to take advantage of the structural trends outlined above is likely to drive increased investment in the sector. Countries like as Spain or Italy have PBSA provision rates¹⁶ of below 10%, compared to more than 30% in some major UK markets,¹⁷ suggesting there is significant scope for delivery of new supply. Cities such as Milan, Madrid and Barcelona all have student populations of over 100,000 and multiple well-ranked institutions, giving them diverse demand bases and making them likely to be key growth markets for the sector in the coming years.

As niche sectors mature, greater liquidity and investor acceptance tends to lead to any yield premium they offer versus traditional sectors narrowing, as investors require less compensation for liquidity and transparency risks; such a pattern has already been observed in UK PBSA. This potential narrowing of yields in European markets is another factor behind our conviction that the sector is likely to offer attractive returns.

Comparisons with other regions

Student accommodation in much of Asia Pacific is still in a nascent stage, with relatively limited PBSA stock, few specialized operators and comparatively little institutional investment. The major exception in the region is Australia, which has characteristics similar to those of the sector in Europe and the UK, but is a number of years behind in its evolution. This suggests a similar path to maturity may lie ahead. Like Europe, Australia benefits from English-language courses at comparatively lower tuition costs than the US, while also offering post-study work visas. As a result, it has an even higher proportion of international students than most major European countries.¹⁸ Still, the Australian PBSA sector remains in its infancy as an investable property type. Stock numbers are low even compared to the most immature countries in Europe, with a student-to-bed ratios of 16-to-1¹⁹ and significantly higher than the UK where it is around 3-to-1. 

Traditionally, international students in Australia tap into private rental housing for accommodation. Both the private rental market and the PBSA sector in Australia have experienced tight occupier market fundamentals and experienced double-digit rental growth over the past two years.²⁰ The solid performance has been primarily driven by strong migrant inflows, including international students, as well as high interest rates that encourage Australians to rent rather than buy, and relatively limited existing stock and new supply of all types of housing. 

The United States, by contrast, has a more established student housing sector, but our view of the property type there is less favorable as compared to other regions. For a start, the demographics are less favorable given the population of 18-to-24 year-olds in the US is forecast to decline through 2033²¹ and enrollment rates at 4-year institutions have remained roughly flat since 2010.²² 

An additional point of difference between US and European universities is their locations. Many top-tier US universities are in small cities in which a single school dominates the population and economy. Student housing properties in these markets are dependent on a single source of demand that controls enrollment growth and housing policy. Additionally, barriers to new supply are generally lower compared to major European cities, which allows for more new development to come in and disrupt the market. Taken together, these factors mean rent trends in these markets can be volatile. While there are similar university-centric towns in Europe, our investment focus is on the larger markets, where housing markets are tightest and there is a diverse demand base from multiple universities.

Footnotes

¹ Source: Eurostat 

² Source: Higher Education Statistics Agency (UK)

³ Source: Eurostat, Higher Education Statistics Agency (UK) 

⁴ Source: Savills 

⁵ The number of European universities in the top 2000 spots Center for World University Rankings (CWUR) league tables per capita is the highest of any world region, according to data from CWUR, Oxford Economics, and analysis by LaSalle. 

⁶ Source: Educationdata.org 

⁷ Source: Eurostat 

⁸ Source: HESA 

⁹ Assuming no change in the propensity of people in that age cohort to attend university. 

¹⁰ UK Government introduced policy on January 1^st 2024 

¹¹ Source: European Central Bank 

¹² For deeper analysis of European housing markets and the underlying supply imbalance see LaSalle’s ISA Outlook 2024. 

¹³ Source: JLL 

¹⁴ LaSalle analysis of data taken from the national statistics agencies of major European countries (Germany, UK, France, Spain, Sweden, Denmark, Finland, Italy, Portugal, Netherlands, Ireland) 

¹⁵ Source: MSCI Real Capital Analytics 

¹⁶ Metric defined as number of purpose-built student beds as a share of total enrolled population of students in higher education. 

¹⁷ Source: JLL 

¹⁸ Source: UNESCO 

¹⁹ Source: CBRE 

²⁰ Source: SQM Research (for private rental market), as of November 2023; CBRE (for PBSA), as of August 2023 

²¹ Source: Oxford Economics 

²² Source: National Center for Education Statistics (US) 

Important Notice and Disclaimer

This publication does not constitute an offer to sell, or the solicitation of an offer to buy, any securities or any interests in any investment products advised by, or the advisory services of, LaSalle Investment Management (together with its global investment advisory affiliates, “LaSalle”). This publication has been prepared without regard to the specific investment objectives, financial situation or particular needs of recipients and under no circumstances is this publication on its own intended to be, or serve as, investment advice. The discussions set forth in this publication are intended for informational purposes only, do not constitute investment advice and are subject to correction, completion and amendment without notice. Further, nothing herein constitutes legal or tax advice. Prior to making any investment, an investor should consult with its own investment, accounting, legal and tax advisers to independently evaluate the risks, consequences and suitability of that investment.

LaSalle has taken reasonable care to ensure that the information contained in this publication is accurate and has been obtained from reliable sources. Any opinions, forecasts, projections or other statements that are made in this publication are forward-looking statements. Although LaSalle believes that the expectations reflected in such forward-looking statements are reasonable, they do involve a number of assumptions, risks and uncertainties. Accordingly, LaSalle does not make any express or implied representation or warranty, and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, or other information set out in this publication or any further information, written or oral notice, or other document at any time supplied in connection with this publication. LaSalle does not undertake and is under no obligation to update or keep current the information or content contained in this publication for future events. LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication and nothing contained herein shall be relied upon as a promise or guarantee regarding any future events or performance.

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This article first appeared in February 2024 edition of the BAI Newsletter

For debt providers, the relative risk adjusted return profile for new real estate credit today is very attractive. Higher interest rates have helped to improve the return profile, and new loan detachment points are generally trending lower, particularly in instances where borrowers are willing to show support for underlying assets and commit additional cash to a transaction.

These attractive fundamentals for lenders were largely in place last year too, however transaction volumes across new acquisitions and refinancings were limited for a variety of reasons. By contrast, in 2024 we expect to see robust demand for debt financing solutions provided by real estate investment funds. This is due to both recent market developments and longer-term structural trends. In the shorter term, borrowers have begun to adapt to a higher cost of financing. This comes as no surprise given the dynamics behind the rapid increase in interest rates that abruptly ended 15 years of historically low rates. With the borrowing market adapting to this new environment, and with interest rates expected to stabilize and start to decline, we have also seen transactions start to move forward at the start of 2024. It is expected that debt will again become a common component of sponsors’ business plans in 2024.

In the longer term, the migration of commercial real estate lending activity away from banks and towards debt funds has been a dominant theme over the past 15 years. The long-running Bayes Business School study of UK CRE lending* found that, in the first half of 2022, debt funds exceeded domestic banks’ new originations for the first time.

Alternative lenders are poised to further expand their market share in the coming years. Bayes Business School estimates demand for real estate finance in Europe at €310 billion per year, and the current stock of outstanding real estate debt at €1.6 trillion. However, as underlying values have declined and loan-to-value ratios (LTVs) are down, traditional lenders may only be willing to advance around €1.3 trillion of the capital necessary to refinance loans maturing through 2027.

Source: MSCI Real Capital Analytics, Bayes Business School, CBRE, JLL, LaSalle (01/24).
Notes: Past performance is not indicative of future results. There is no guarantee that any trends shown herein will continue or that any forecasts shown herein will materialize as expected. Funding gap estimates based on Bayes Business School assessment of debt outstanding and maturing annually, and LaSalle forecasts of capital value change.

Funds will therefore encounter a significant volume of investment as they play an ever-increasing role in addressing the real estate financing gap, created by banks’ ongoing retrenchment and the considerable quantities of debt falling due for refinancing in the short run.

Despite these attractive dynamics for non-bank real estate lenders, this remains a market with potential for real dispersion in performance between fund managers. Delivering attractive risk-adjusted returns for investors will require several crucial ingredients, including having a well-resourced platform across all facets of the business that is established in the market and leveraging analytical tools to negotiate with borrowers.

The benefits of an established market presence and platform

For alternative lenders to remain competitive, they must be able to offer sponsors a wide range of capital solutions. The flexibility afforded by a variety of debt structures should help borrowers transition to a higher-rate environment, allocate risk to where it is most suitably borne and ensure that good-quality properties continue to have access to liquidity.

In other words, both debt funds and borrowers benefit from differentiated pockets of debt capital, ranging from senior lending, whole loans, levered whole loans and mezzanine, including development and refurbishment financing. Borrower demand for bespoke financing solutions makes this an attractive environment in which to be active and to deploy capital across a diverse range of market opportunities.

As a lender, a natural complement to this diversity of investment strategies is a wider geographic scope. The ability to deploy capital across borders and across currencies further enhances funds’ ability to be selective.

Structuring is also critical, particularly when underwriting risk for assets that traditional lenders are less willing to finance. Appropriately managing risk while offering more structured solutions, utilizing a range of protections such as standard loan covenants or business plan targets are all measures that help align interests between borrowers and lenders.

Scalability also plays a critical role in a lender’s ability to remain competitive in today’s environment. – While refinancing needs can be met by more traditional senior-mezzanine lending structures, an increasingly prevalent structure sees a whole loan provided by an alternative lender. The whole loan provider provides a single counterparty and point of contact for a borrower to work with, while allowing for more certainty as well as enhanced control for the lender. This combination of a flexible investment mandate, cross-border presence and a robust approach to underwriting and deal structuring is fundamental to striking the right balance between supporting borrowers and protecting investors’ capital. These attributes will naturally be found in those established players with a proven track record of transacting and who can offer certainty and speed of execution.

Those same funds will also disproportionately be those with access to a wider asset management platform, also to borrowers’ benefit.

Ultimately, a collaborative real estate debt investment manager will not be extending loans with the express intention of eventually taking over or outright owning the assets. But being part of a large platform with asset management capabilities is not just an important safety net in the event that a restructuring and transfer of ownership does take place. It also helps pre-empt and avoid that situation. Drawing on those asset management capabilities means that lenders can identify red flags in a deal early-on, and in turn work with their borrowers and help provide insight into ways to maximise value.

Leveraging wider analytical tools

As detailed in LaSalle’s ISA Outlook 2024, we also believe that, to lend successfully in a challenging market, debt providers need to maintain a targeted approach, effectively sourcing transactions by scrutinising market data and making use of local market presence.

Tapping into a wider pool of analytical tools, data and longer-term outlooks is invaluable when working with borrowers and understanding their commercial horizons. For example, in the absence of comparable transactions to act as reference points for how certain asset valuations have rebased, the ability to conduct price discovery by analysing, understanding, and underwriting fundamentals from the point of view of an equity sponsor is key.

In some instances, fresh borrower equity is required to support elongated business plans. To that end, fostering a good relationship with borrowers by working with their reformulated business plans is fundamental to unlocking the right structured financing solutions, especially in the face of forthcoming debt maturities. In a market impacted by rising interest rates and geopolitical convulsions, finetuning capital requirements quickly can be only undertaken by a real estate manager with the capabilities and resources to conduct that deep analysis.

Good data is also important when seeking to invest across a range of different real estate assets. Currently, lender appetite is focused on sectors with especially strong occupier fundamentals, and their ability both to capture rental growth in line with inflation and to access relatively liquid capital markets. Logistics, residential, student and select operational sectors, such as hospitality, are widely considered to offer resilient fundamentals. This is resulting in a reasonable degree of liquidity for originating new financings in those preferred sectors, but insight remains crucial to picking both markets and sponsors with the capabilities to access such growth. More importantly and particularly in scenarios whereby strong occupational trends are obvious, it is still critical to understand cost structure, and ultimately capital markets in an environment where very little transaction data exists. Access to good quality data is a key component of determining underlying value of an asset in today’s environment.

Outside of those preferred sectors with a more obvious path to cash flow, the traditional sectors of offices and retail have been most challenged. That is especially true for offices outside of prime CBD, whereby a large amount of uncertainty exists, arising from the cloud of uncertainty surrounding future occupier demand and what the impact on capital markets over the long run will be. Data-led insights and a proprietary view on whether, how and where the office market will recover is therefore an important advantage for lenders. For example, ESG credentials are increasingly important as a key determinant of asset performance in the office sector. Wellness, energy efficiency, sustainability accreditations – all of these are metrics that need to be analysed to forecast occupier demand, and in turn, valuation trends.

Opportunities and challenges for 2024

Since the global financial crisis, commercial real estate lending has evolved towards a diverse pool of capital providers which includes both more traditional banks, but also debt funds. In 2024, this trend is expected to continue.

Despite the scope for funds to earn more market share this year, lenders face many potential pitfalls. When it comes to origination, sourcing financing opportunities will require a focus on parts of the market where supply and functionality has lagged societal trends. These situations enable rental growth at or above inflation, aligning with what individual and corporate occupiers want from their spaces. Likewise, credit selection and structuring will require a keen eye on lending basis and coverage levels, alongside the underlying real estate capabilities of the sponsors.

Real estate credit is currently a highly attractive asset class. But to ensure that both fund investors and borrowers are being served well requires a debt platform that can provide a variety of leverage solutions, tap into a rich bank of data/analytics, and draw on insights from a wider bench of real estate specialists, all underpinned by a market-leading team with exceptional borrower relationships. Those are the characteristics that investors and borrowers alike should prioritise in their partners.

*From 2018, The UK Commercial Real Estate (CRE) Lending Survey is based at Bayes Business School, City, University of London. The Survey is a unique and comprehensive record of CRE lending, and an industry standard source of information, regularly referenced in the national financial press and trade publications: https://www.bayes.city.ac.uk/ faculties-and-research/centres/real-estate/bayes-cre-lending-report. Up to 2017, the study was published by De Montfort University, Leicester.

At a recent CREFC Europe event co-hosted by LaSalle and property developer Regal London, representatives from the real estate industry’s leading debt funds, banks, and developers came together to discuss the outlook for European real estate credit markets.

Hosted at LaSalle’s new London offices, the open-forum discussion between all participants covered topics such as the (re)financing environment for borrowers and lenders, where lenders and borrowers see best value and greatest opportunity, and who should assume the responsibility for bearing the costs of delivering sustainable real estate.

A higher interest-rate environment, quick on the heels of the pandemic, makes this an important juncture for participants in this diverse and opaque market to share perspectives. Introducing the session, Dominic Silman, LaSalle’s European Head of Debt and Value-Add Capital Research and Strategy, compared analysing real estate debt markets to the parable of the blind men and the elephant. Each interprets what they can feel, depending on the part of the elephant that they are holding – from snake to tree to fan. Likewise, real estate debt markets are covered by a variety of different data sets which, taken in isolation, can fail to capture the bigger picture.

Some of the megatrends remain readily apparent. The migration of commercial real estate lending activity away from banks and towards debt funds has been a dominant theme over the past 15 years. The long-running Bayes Business School study of UK CRE lending found that, in the first half of last year, debt funds exceeded domestic banks’ new originations for the first time. Funds will continue to play an increasing role in addressing the financing gap created by banks’ ongoing retrenchment and the considerable quantities of debt falling due for refinancing in the next 15 months.

However, it can be a challenging market for funds to negotiate those refinancings. David White, Managing Director in LaSalle’s Debt Investments team, pointed out that over the past 18 months, certain asset valuations have rebased – but it’s not always clear to what level.

Close collaboration between borrowers and lenders is becoming more critical than ever before in order to unlock the right structured financing solutions in the face of forthcoming debt maturities. Lenders need to work closely with sponsors to understand how business plans are evolving in light of the macroeconomic environment.

A lot of what is seen in the market today is focused on sectors with especially strong occupier fundamentals, and their ability both to capture rental growth in line with inflation and to access relatively liquid capital markets. Logistics, residential, student and select operational sectors, such as hospitality, are widely considered to offer resilient fundamentals. Marc Eden, Investment Director at Regal London, spoke of their decision to diversify across the beds sectors, from residential to student with hotels and later living in the mix too. Continuing the earlier theme, Richard Craddock, Managing Director in LaSalle’s Debt Investments team, explained that “elephants are going to the same few watering holes – beds, sheds and, selectively, ‘meds’”.

This is resulting in a reasonable degree of liquidity for originating new financings in those preferred sectors. In that context, a lender’s geographic scope and ability to deploy across borders offers flexibility to be more selective. Debt funds may also benefit from access to differentiated pockets of debt capital, from senior lending to mezzanine debt to development / refurbishment financing. Borrower demand for bespoke financing solutions makes this an attractive environment in which to be active and to deploy a broad range of capital across diverse market opportunities.

Outside of those preferred sectors, the consensus view seemed to be that the traditional sectors of offices and retail were most challenged, particularly for offices outside of Prime CBD where valuations were deemed not to have yet caught up with the cloud of uncertainty surrounding future occupier demand. A few participants with significant exposure to the office sector acknowledged that much of their time was consumed with managing their book. A key takeaway from this part of the conversation was that, regardless of sector, modern real estate is more operational, and lenders look beyond the assets themselves through to the sponsors. As with the period post-GFC, the market will see a flight to quality of assets and sponsors.

The discussion closed with a debate on the willingness of lenders – and their underlying investors – to encourage borrowers to invest in environmental upgrades by offering economic incentives.

The valuation premium for assets with top-performing ESG credentials, particularly in the office sector, is widely understood. Lenders can therefore frame this question from a risk-adjusted return perspective: a greener building makes for better-quality collateral and therefore reduced risk. A similar logic applies at the owner/occupier level. Jonathan Seal, CEO of Regal London explained that in his discussions with potential office occupiers, wellness, energy efficiency and the associated sustainability accreditations were incredibly important to draw people back to the workplace.

However, because of the opaque relationship between a building’s sustainability performance, the costs of refurbishment and the impact on cashflows and valuation, this requires a deep understanding by all parties of real estate fundamentals, asset carbon / ESG performance and how to underwrite specific assets and their associated business plans.

The conversation on ESG highlighted two key inter-linked challenges: metrics and data. There was consensus among participants – borrowers and lenders alike – that assets with better ESG credentials intuitively offer better risk profiles. However, due to the embryonic nature of some metrics and an inconsistency in others as well as lack of transparency in data, especially for social and governance considerations, there was no common language to help differentiate risk and respective margins. This made it difficult to agree on who should provide the financial incentives for the transition of assets.

Overall, the conversation underlined one of the key characteristics of lending markets today. Real estate credit is currently a highly attractive asset class – but it’s only those lenders able to underwrite individual asset-level fundamentals in terms of quality, location and ESG specifications who are best placed to capitalise.

Through history, residential rent controls have tended to appear at times of external shock and dislocation.¹ COVID-19 and the subsequent inflationary spike have proven to be such a catalyst. Changes to rent regulations can potentially reshape the risk-reward profile of residential investments, impacting values over both short and long timescales. As we set out in a previous piece, A New Wave of Residential Rent Control, the introduction of rent control measures can also have unintended consequences that distort the market. While often sold as a solution to spiralling housing costs, in practice they can have the opposite effect to their intent, deterring the construction of new rental housing, thus leading to further increases in rents.

Our findings in that report still hold true, but an update is needed because the “great reflation” period has seen a groundswell of support for further rent regulations, especially in Europe. The pandemic opened the door to unprecedented government intervention, and there has been a heightened willingness among politicians to introduce forms of rent control. But there continues to be vast differences across countries, regions and cities, reflecting varying political appetites for intervention. What is the impact of these recently enacted measures and which markets have been most impacted?

Rent regulation starting positions vary widely

Regulations take many different guises including broad brush limits on initial rent levels (e.g., in France, Ireland), market-wide caps to annual rental increases (Germany, Sweden) or caps limited to buildings of a certain age or in certain areas deemed to be stretched (Denmark, Catalonia, New York City, California). Beyond rent-setting, lease length, security of tenancy and eviction protections are additional factors to consider. Crucially, regulation should be viewed on a spectrum rather than as a binary determination.

In “unregulated” rental markets, such as England, most of the US and select European countries (e.g., Finland, Poland and Czechia), rents can typically be freely set at the outset of a tenancy, with the landlord permitted to increase them at the end of the agreement (typically 12 months) by any amount. This allows landlords in these markets to mark rents to market levels quickly. Even in markets that are usually considered to be unregulated, other legal limitations should also be considered; for example, the UK parliament is currently considering a law which would end no-fault evictions in England and Wales.

Elsewhere in Europe, in parts of Canada, and in several US states like California, Oregon and New York, the most typical form of rent control is limiting annual rent escalations for existing tenants. The devil is in the detail of these specific regulations. California, Oregon and New York City’s regulations, for example, apply to a subset of older assets; in Toronto (and all of Ontario) they apply to all but the newest. In the case of Oregon, a limit of 7% increase plus CPI is not much of a limitation on investment economics,² while in New York City, rent increases are set by a regulatory body and can have a significant impact.

Europe’s generally more constraining rent increase caps mean that in-place rents are normally significantly below open-market rents for new leases. Limiting annual rent increases for in-place tenants prevents rents from being marked to market, usually resulting in tenants being “stickier”, staying in their homes in the knowledge that the rents they are paying are below what they would pay under a new lease. This has the effect of higher occupancy levels and lower expenses on unit turnover and voids. Catch-up between in-place and market rents occurs gradually, even during periods of weakness in market rents.

As a result of these factors, heavily regulated markets tend to experience stable in-place cash flow growth, without the cyclicality of less restrictive markets. This is highlighted on the below chart, which shows that residential rental growth in the UK has been far more volatile than regulated European markets. Given steady, non-cyclical growth, regulated residential in Europe has been able to deliver a higher level of long-run growth than most of the commercial sectors. These attributes of stability and low-but-dependable growth can be appealing to core investors, especially in lower inflation environments.

Rental growth and volatility

[Average per annum since 2000* and standard deviation]

Source: LaSalle (May 2023), MSCI (December 2021)

Variety of cash flows can be a positive – but beware regulatory surprises

If regulations are known and stable, they can be priced in, limiting the risks to informed investors. A bigger concern comes from new, unforeseen regulations during the ownership of an asset. So-called “stroke-of-the-pen” risks may cause underwritten rent levels and growth to suddenly change. This remains a persistent threat as long as some policymakers are willing to support new rent controls. The factors which have made residential such a compelling sector in recent years, namely the undersupply of housing and tailwinds supporting demand, have exacerbated the threat, as rents in many major markets have increased as a share of average household income. The bout of high inflation seen in 2022-23 has put even more pressure on household finances and motivated politicians to act. The result has been new regulations brought in across Europe and North America, although some are some supposedly temporary.

Another wave of new regulation—Europe

Since beginning of 2022, several European markets have introduced new rental regulations, including in Scotland, France, Spain, Denmark and the Netherlands (see map). In other markets, such as Germany, new regulations are now being discussed.

The impact of these is just beginning to play out, but they are having meaningful effects already, with significant variation by market and asset profile. During this period of high inflation, these caps have created a double hit for some residential owners, limiting rental growth at the same time as operating expenses rose quickly.

Rental regulations introduced over 2022-2023

[Lighter colored markets considered unregulated]

Source: LaSalle (May 2023)

In some markets, recent regulatory changes are less disruptive. For example, the cap to indexation at 4% in Denmark may result in below-inflation rental growth for one or two years. Should inflation revert to historic levels as anticipated, this is unlikely to meaningfully damage performance on assets held over the long term, but potentially mean negative real cashflow growth for landlords in the near term. This is because inflation exceeded the cap in 2022 and will expect it will likely do so again in 2023. Residential assets in regulated markets have only been able to deliver inflationary in-place rent growth when inflation is at “normal” levels. This is because regulators in Denmark and elsewhere have tended to prevent double-digit nominal increases even when justified by inflation.

The Scottish government’s decision to ban rent increases completely in September 2022 was potentially more disruptive. Some developers and investors indicated that construction of badly needed new for-rent supply was not viable in such an environment. Being unable to underwrite rental growth would likely discourage private investment in Scotland’s housing market, exacerbating the housing shortages which necessitated the rent controls in the first place. The Scottish government backtracked in April 2023, replacing the freeze with a still tight 3% cap.

Once regulations are introduced they are often very difficult to unwind, as few politicians will publicly campaign to reverse policies which will result in their voters paying more in rent. Evidence of this can already be seen in Spain, which introduced supposedly temporary caps to rent increases that have been extended beyond their original end dates and has further tightened regulations with the introduction of a wide-ranging national housing law.  

Less constraining changes in the US

In parts of the US, rent control gained traction in the late 2010s, reversing a two-decade trend toward less regulation. But most cases, new measures have been relatively mild. In 2019, Oregon and California enacted statewide caps on annual rent increases for existing tenants, but limited the restrictions to older properties and set the level of the caps high.³ A notable example of a more severe new rent ordinance comes from St. Paul, Minnesota. Voters there approved an ordinance in 2021 that limited rental increases to 3% across all buildings and for renewals and new leases alike. Developers responded by halting construction projects in the city, with residential permits falling by 30%. Less than a year later, the St. Paul city council revised the ordinance to more closely resemble the legislation in California and Oregon.⁴

Despite the advances of rent control legislation in a small number of states and cities in recent years, many more jurisdictions have rejected it. In 2022 alone, new rent regulations were introduced by state legislators in 19 states and did not receive enough support to pass. Most recently, in April 2023, Florida passed an outright ban on rent control in that state while at the same time allocating new funding for the development of affordable housing.

Living with increased regulation

Despite the risks of regulatory change, regulated residential assets can potentially offer investors a favourable return given low risks, particularly when compared to the more challenged office sector. That said, the devil is in the details, given widely varying regulatory frameworks across cities, states and countries. With changes to policies underway, managing the risks of greater regulation is now more important than ever for investors. To do so, we recommend an approach that encompasses vigilance, diversification and identification of less-regulated proxies for residential—we detail each of these strategies below.

Looking ahead

• Be vigilant of shifting regulations impacting both current and potential investments. Assessing the likelihood and timing of new legislation is an extremely difficult task but is a prerequisite when screening any potential acquisition in the sector.
• Diversify exposures across markets with differing regulatory regimes, limiting the impact of a single change in legislation to a portfolio.
• Require higher returns to compensate for future regulatory risk. The lack of certainty on regulations necessitates that investors to add an extra level of uncertainty to their future cashflows, potentially requiring additional risk premia at both acquisition and exit.
• Consider whether other Living sub-sectors may be less likely to be brought under the scope of rent controls. For example, in European purpose-built student accommodation (PBSA) operates with very limited restrictions on rents, even in the most tightly controlled markets. Because European universities tend to be clustered in major cities, PBSA offers investors some of the same compelling attributes as traditional residential—a chronic supply-demand imbalance, short leases allowing for rapid capturing of rental growth and further maturity as an asset class to come—but with lower regulatory risk. Similarly, shorter-stay co-living and serviced apartment stock may fall outside the regulation of traditional apartments.

1. The earliest record of rent control dates to the Roman Empire. Notable shocks that were a catalyst for new rent regulation included the Chinese Song dynasty’s relocation to its new capital city in 1127 and the period immediately following the Great Lisbon Earthquake of 1755. See Kholodilin’s fascinating review of historic rent control at this link.
2. On the other hand, changes in eviction protections in Oregon have been significant; this is a reminder to consider non-rent aspects of regulation.
3. California’s law caps annual rent increases at the lower of CPI+5% or 10% while Oregon allows for 7% plus the rate of inflation.
4. The revised St. Paul ordinance exempts buildings less than 20 years old and allowing for increases of CPI plus 8% for new leases.

INVESTMENT MANAGEMENT

Value-add investing in Canada

Realizing the value of Canadian real estate

A robust real estate market

Canada is of the few AAA sovereign markets with a sizable and transparent real estate market. G7 leading population growth, a highly educated workforce and a service-oriented economy all point to continued demand.

Multi-sector exposure

The value-add team in Canada focuses on building diversified portfolios of assets where user demand is strongest but supply is insufficient. The team is also able to pivot with changing market conditions.

Active asset management

LaSalle’s Canadian asset management team drives returns in our portfolio of assets. By identifying opportunities for value creation and execution, the team seeks to manage downside risk and aims to realize income and value for investors.

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Strategic, research-based approach

The ability to harness and synthesize information is key to the success of the Canadian value-add team. They regularly draw on the expertise of LaSalle’s data-driven, in-house Research and Strategy team, who are actively involved in advising on strategy and investment decisions.

Learn more

For a full description of the risks associated with investing in any opportunity, please refer to the “Summary of Risks” in the relevant offering memorandum.

Sustainability

LaSalle recognizes that ESG factors, when properly applied, can positively influence investment performance. We tailor our approach to each fund and each asset, working to protect and enhance financial returns today and in the future. We are proud to have achieved a score of A+ from the UN PRI for both strategy and governance and property. We have also committed to being a net zero carbon firm by 2050.

By working to improve energy efficiency, lower emissions and capture resources such as sunlight and rainwater, we’re improving performance today and building a better tomorrow. 

Learn more

Explore value-add assets in Canada

Office

2 & 30 International Boulevard

Modern flex-office near Canada’s largest international airport

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Residential

East York Apartments

Toronto multifamily complex

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Retail

Mission Junction Shopping Centre

A dominant grocery-anchored shopping center in Mission, British Columbia

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Industrial

Southern Ontario Industrial Portfolio

Six industrial assets across southern Ontario

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Industrial

Toronto Airport Mid-Bay Industrial Portfolio

An eight-building portfolio near Pearson International Airport

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The LaSalle value-add investments team, Canada

Michael Fraidakis

Chief Investment Officer, Canada

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Trevor Thompson-Harry

Deputy Fund Manager, Value-add Strategies

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Amy Barsich

Managing Director, Fund CFO

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John McKinlay

Chief Executive Officer, Canada

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Chris Langstaff

Canada Head of Research and Strategy

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LaSalle Canadian value-add investment news

May 08, 2024 LaSalle Bolsters Senior Leadership Team in Canada Michael Fraidakis joins firm as Head of Alternative Investment Strategies and Chief Investment Officer, Canada.

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Oct 17, 2022 LaSalle BVK Canada Advantage Acquires Toronto Mid-Bay Industrial Portfolio, Multifamily Property 5 min read LaSalle Investment Management (“LaSalle”) announced its fifth Canadian value-add real estate fund in Canada, LaSalle BVK Canada Advantage (“BVK Advantage” or “the fund”), expanded its portfolio through the acquisitions of a mid-bay industrial portfolio and multifamily property.

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Jan 24, 2022 LaSalle completes final close of fifth Canadian value-add fund at over C$300m 4 min read LaSalle Investment Management (“LaSalle”) today announced it completed the final close of LaSalle Canadian Income & Growth Advantage Fund (“CIG Advantage”, the “Fund”) at an aggregate total of C$306 million.

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INVESTMENT MANAGEMENT

Value-add investing in Europe

Realizing the value of European real estate

Diversified investment strategy

The strategy is focused on secular growth opportunities in key Western European markets, in particular the living, life sciences, wellness and distribution sectors.  We maintain the flexibility to seek out dislocation opportunities in other sectors when they arise.

Dedicated team, extensive experience

The team is comprised of over 20 professionals and the senior leadership has an average of over 20 years’ experience. To ensure alignment of interest, LaSalle employees co-invest in the strategies.

Active asset management 

LaSalle’s Asset Management team plays a key role generating returns in the portfolio. We create value through repositioning and developing assets, formulating portfolio aggregation strategies and through our deal-sourcing network, with the majority of acquisitions conducted off-market.

Discover Asset Management

Strategic, research-based approach

The ability to harness and synthesize information is key to the success of the European value-add team. We regularly draw on the expertise of LaSalle’s data-driven, in-house Research and Strategy team, who is actively involved in advising on strategy and investment decisions.

Read our insights

For a full description of the risks associated with investing in any opportunity, please refer to the “Summary of Risks” in the relevant offering memorandum.

Explore value-add assets in Europe

Residential

Fulton & Fifth

A high-quality residential-led development located in the Wembley are of London with a wide range of amenities and community benefits

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Office

Maison Bayard

A landmark office building in central Paris with realized development potential

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Niche

Met House

An education building in the vibrant East London district of Whitechapel.

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Sustainability

LaSalle recognizes that ESG factors, when properly applied, can positively influence investment performance. We tailor our approach to each fund and each asset, working to protect and enhance financial returns today and in the future. We are proud to have achieved a score of A+ from the UN PRI for both strategy and governance and property. We have also committed to being a net zero carbon firm by 2050.

Learn about our impact

The LaSalle value-add investments team, Europe

Michael Zerda

Head of Debt and Value-Add Strategies, Europe

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Blake Loveless

Head of Value-Add Investments

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Chris Lewis

Managing Director, Value-Add Investments

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Kevin Kong

Director, Value-Add Investments

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Gary Moore

Head of International Accounts, Europe

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LaSalle European value-add investment news

Nov 21, 2024 LaSalle and Urbania launch Spanish living joint venture delivering over 850 PBSA and flex-living beds in Barcelona LaSalle and Urbania have received building permits for a 14,500 sqm student accommodation development, slated for opening in September 2025.

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Nov 11, 2024 The Amp secures additional 19,000 square feet from London College of Contemporary Arts Expansion of LCCA footprint takes The Amp to near-full occupation in just two years.

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Sep 03, 2024 LaSalle and Trilogy bring De Montfort University to education and innovation campus in East London De Montfort will take 18,000 square feet, taking The Amp’s total occupancy to 83% since its opening last September.

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INVESTMENT MANAGEMENT

Value-add investing in the United States

Realizing the value of US real estate

Multi-sector exposure 

The US value-add team focuses on building diversified portfolios of assets where user demand is the strongest, but supply is insufficient: residential, industrial, life science and medical office. They are able to pivot with changing market conditions.

Dedicated team, meaningful alignment

The US value-add team is comprised of over 15 professionals who are dedicated solely to the value-add investing platform. To ensure alignment of interest, LaSalle employees co-invest in the strategies.

Active asset management 

LaSalle’s Asset Management team plays a key role generating returns in the portfolio of assets. They create value through repositioning assets, managing risk-mitigated ground-up development and executing portfolio aggregation strategies, with the vast majority of acquisitions conducted on an off-market basis. 

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Strategic, research-based approach

The ability to harness and synthesize information is key to the success of the US value-add investments team. They regularly draw on the expertise of LaSalle’s data-driven, in-house Research and Strategy team, who are actively involved in advising on strategy and investment decisions.

Learn more

For a full description of the risks associated with investing in any opportunity, please refer to the “Summary of Risks” in the relevant offering memorandum.

Sustainability

LaSalle recognizes that ESG factors, when properly applied, can positively influence investment performance. We tailor our approach to each fund and each asset, working to protect and enhance financial returns today and in the future. We are proud to have achieved a score of A+ from the UN PRI for both strategy and governance and property. We have also committed to being a net zero carbon firm by 2050.

By capturing more data on energy efficiency, emissions and other metrics such as resource capture and community benefits, we’re tracking our improvements. In helping investors meet their own sustainability goals, we aim to realize both superior performance and a better tomorrow.

Learn more

The LaSalle value-add investments team, United States

Jeffrey Shuster

President, LaSalle Value Partners US

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Ty Spearing

Head of Asset Management and Dispositions

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Amanda Hassan

Senior Vice President, Value-add Investments

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Michelle Gottlieb

Senior Vice President, Asset Management

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Zachary Bublitz

Senior Vice President, LaSalle Value Partners US

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Brian Wilkinson

Senior Vice President, Asset Management

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Brian Gorz

Chief Financial Officer

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Joseph Diamond

Portfolio Controller

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LaSalle US value-add investment news

Apr 29, 2024 Jeffrey Shuster named President of LaSalle Value Partners US; will lead US high-return strategies In his new role, Jeffrey will lead LVP US, LaSalle’s flagship value-add fund series in the United States and spearhead LaSalle’s expansion of high return investment offerings in the U.S.

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Aug 05, 2020 Jeff Shuster Joins LaSalle as Managing Director for its US Value-Add Fund Series 3 min read LaSalle Investment Management (“LaSalle”) today announced that its U.S. value-add fund series, LaSalle Income & Growth, has bolstered its investment team with the hiring of Jeff Shuster as Managing Director and Senior Acquisitions Officer.

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Feb 22, 2019 LaSalle Acquires Value-Add Multifamily Asset in Dallas 4 min read LaSalle Investment Management (“LaSalle”) today announced that its U.S. value-add fund, LaSalle Income & Growth Fund VII (“Fund VII”), has acquired Rienzi at Turtle Creek, a 152-unit high-rise rental apartment community in the affluent Turtle Creek submarket of Dallas, Texas.

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FOR INTENDED INSTITUTIONAL INVESTORS ONLY – NOT FOR GENERAL PUBLIC DISTRIBUTION

INVESTMENT MANAGEMENT

LaSalle Debt Investors

Investing in commercial real estate debt in growth markets across the US.

Focus on growth markets 

The team invests in tactical opportunities in select American markets. Some of the attributes they look for are barriers to new development, sustained job growth and regions with diverse economies.

Secure asset class with a low default rate 

Short-term real estate debt has historically had a low default rate, particularly in the growth markets where the team invests.

Strong access to deal flow 

A strong reputation in the market based on quick and efficient closing has allowed the LaSalle Debt Investors team to build solid, long-term relationships with sponsors. Currently over 40% of sponsors are repeat borrowers.

Integrated origination and underwriting 

The integrated nature of LaSalle’s origination and underwriting team help to provide end-to-end confidence in the assets, the sponsors and the projects loans are meant to fund.

Continuous and proactive in-house asset management 

Unlike some lenders, asset management is not outsourced. The team monitors both finances and renovations, with regular site visits and quarterly reporting on progress embedded into the process.

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Strategic, research-based approach

The ability to harness and synthesize information is key to the success of the LaSalle Debt Investors team. They regularly draw on the expertise of LaSalle’s data-driven, in-house Research and Strategy team, who are actively involved in setting strategy and making investment decisions.

Learn more

Looking to borrow money for your real estate project? Visit our alternative lending solutions page.

The LaSalle Debt Investors team

Glenn Sonnenberg

Executive Chairman

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Chip Sellers

Executive Vice President

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Craig Oram

Portfolio Manager and President, LaSalle Debt Investors

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Luke Mehring

Senior Vice President

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Mark Milovic

Managing Director, Head of US Debt Originations

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Melody Zaghi

Vice President

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James Lee

Senior Vice President

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LaSalle news

Jan 30, 2025 LaSalle and Deeley Freed obtain planning permission for Bristol shopping centre redevelopment Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 28, 2025 LaSalle provides a £100m loan for Apollo’s 699-bed PBSA asset, Pavilion Court, in Wembley Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 10, 2025 LaSalle provides a £68.7 million green loan for Vita’s 540-bed PBSA scheme in central Birmingham Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

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FOR INTENDED INSTITUTIONAL INVESTORS ONLY – NOT FOR GENERAL PUBLIC DISTRIBUTION

INVESTMENT MANAGEMENT

Debt investments, Europe

Investing in European real estate credit

Experienced, pan-European team

Our European Debt Investment team is comprised of over 20 investment professionals representing 9 nationalities with a broad range of credit investing experience.

Broad range of debt strategies 

We provide creative and bespoke financing solutions, including senior debt, whole loans, mezzanine debt and development lending.

Proprietary sourcing channels 

We have a long-standing track record of repeat business with market leading sponsors across Europe. Over the past decade we have built a strong reputation for providing quick and efficient financing solutions to our sponsors.

Strategic, research-based approach 

We regularly draw on the expertise of LaSalle’s data-driven, in-house Research and Strategy team, who are actively involved in advising on strategy.

Learn more

For a full description of the risks associated with investing in any opportunity, please refer to the “Summary of Risks” in the relevant offering memorandum.

Sustainability

LaSalle recognizes that ESG factors, when properly applied, can positively influence investment performance. We tailor our approach to each fund and each asset, working to protect and enhance financial returns today and in the future. We are proud to have achieved a score of A+ from the UN PRI for both strategy and governance and property. We have also committed to being a net zero carbon firm by 2050.

Learn more

Looking to borrow money for your real estate project? Visit our alternative lending solutions page.

The LaSalle Real Estate Debt Strategies team

Michael Zerda

Head of Debt and Value-Add Strategies, Europe

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David White

Head of Real Estate Debt Strategies, Europe

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Nathan Jackson

Director, European Debt Investments

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Bobby Fay

Director, European Debt Investments

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LaSalle European Debt Investments news

Jan 30, 2025 LaSalle and Deeley Freed obtain planning permission for Bristol shopping centre redevelopment Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 28, 2025 LaSalle provides a £100m loan for Apollo’s 699-bed PBSA asset, Pavilion Court, in Wembley Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 10, 2025 LaSalle provides a £68.7 million green loan for Vita’s 540-bed PBSA scheme in central Birmingham Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

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INVESTMENT MANAGEMENT

LaSalle Global Solutions

Accessing global indirect real estate through public equities and private structured vehicles

Funds 

The LaSalle Global Solutions team can construct customized portfolios of listed and/or unlisted real estate funds designed to meet investor needs and risk tolerances. Fund portfolios typically give investors access to a diversified set of assets within existing and efficient structures. 

Joint ventures 

Available to select investors where their funds are invested alongside either LaSalle’s funds or those of other real estate operators. In these investments, both parties usually (but do not always) have an equal share in decision making.

Co-investments and club deals 

Co-investment and club deal opportunities are suitable for a range of investors where their funds are invested alongside the funds of other LaSalle clients. In these arrangements, each party will typically have voting rights equal to their overall contribution to the investment.

Secondaries 

We can secure opportunities to acquire interests in funds on an opportunistic, discounted basis or as a way to accelerate investment into a fund with a long queue. In either case, clients benefit by capturing value not available in the normal course of property acquisitions and fund investing.

Bespoke mandates 

The multi-disciplinary Global Solutions team can construct bespoke mandates from a combination of any of the above strategies, as well as publicly traded securities (REITs). This approach allows the team to build portfolios that aim to capture attractive real-time relative value across sectors and geographies.

Commingled investments 

The LaSalle Global Solutions team offers a commingled investment fund that seeks out attractive investments we believe are priced below their fair market value. Through indirect ownership and using an open architecture framework, the Fund maximises the opportunities available to its investors.

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Sustainability

At LaSalle Global Solutions, we believe that responsible investment requires a detailed understanding of sustainability issues.

We work with our partners and advisors to seek to ensure the real estate industry plays a key role in addressing the world’s sustainability challenges. We believe that through our commitment to sustainability and its complexities we will continue to deliver our clients’ investment objectives.

Learn more

Explore the LaSalle Global Solutions portfolio

Industrial

20 Tuas South Avenue

Three industrial buildings in a well-located district of Singapore

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Niche

Princes Street hotel

A proposed top-tier hotel in the centre of Edinburgh’s Old Town.

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The LaSalle Global Solutions team

Lisa Kaufman

Head of LaSalle Global Solutions

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Catriona Allen

Senior Fund Manager

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Rachel Fenwick

Chief Operating and Financial Officer

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Jennifer Gaines

Deputy Global Portfolio Manager

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Eduardo Gorab

Managing Director, Global Research and Strategy

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Kathleen Jowett

Head of Sustainability, LaSalle Global Solutions

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Andrew Muscat

Global Head of Investor Accounting and Finance

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JB Park

Head of Investor Relations, Asia Pacific

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LaSalle Global Solutions news

Jan 30, 2025 LaSalle and Deeley Freed obtain planning permission for Bristol shopping centre redevelopment Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 28, 2025 LaSalle provides a £100m loan for Apollo’s 699-bed PBSA asset, Pavilion Court, in Wembley Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 10, 2025 LaSalle provides a £68.7 million green loan for Vita’s 540-bed PBSA scheme in central Birmingham Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

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INVESTMENT MANAGEMENT

LaSalle Securities

Customizable exposure to real estate ownership with the liquidity of tradable securities.

Opportunistic 

The opportunistic strategy is a highly focused, tactical portfolio focused on select opportunities with highly compelling valuations.

Investment guidelines

• 10-20 names
• Absolute return
• Benchmark unaware

Completion 

The completion securities strategy accesses non-traditional property sectors not easily accessible through direct real estate. 

Investment guidelines

• 15-30 names
• Determine eligible property sectors
• Custom benchmark

Conventional 

The conventional strategy takes an active management approach in seeking to identify the most attractively valued real estate stocks.

Investment guidelines

• 60-90 names
• Relative return
• Benchmark aware

Core

The core strategy pursues a lower risk profile than the investment universe.

Investment guidelines

• 50-80 names
• Screen for high risk factor
• Benchmark aware

Underlying investments in real estates are speculative and involve special risks, and there can be no assurance that the investment objectives will be realized or that suitable investment opportunities will be identified. There is no guarantee that the investment strategies described herein will perform as expected.

Sustainability

LaSalle Securities’ approach is based on active management – properly valuing all aspects of a company, including ESG, and focusing on improving deficiencies and creating value as a result.

We consider ESG factors in our projection of a company’s earnings, our determination of the risk/required return for a company’s real estate, business model, management capabilities and our determination of the long term growth potential of the company’s earnings. We create a proprietary ESG score for each company which is factored into each company’s franchise or platform value.

In addition to integrating ESG in our investment process, we play an active role in championing the continued improvement of corporate ESG initiatives via proxy voting and direct dialogue with company boards and senior management.

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The LaSalle Global Securities team

Lisa Kaufman

Head of LaSalle Global Solutions

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Matthew Sgrizzi

Chief Investment Officer, LaSalle Global Solutions

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Benjamin Lentz

Chief Investment Officer, Global Quantitative Strategy

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Paul Meierdierck

Securities Global Portfolio Manager

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Christopher Battista

Senior Product Manager, LaSalle Global Solutions

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Yelena Diggs

Senior Product Manager, LaSalle Global Solutions

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Scott McWilliams

Director of Operations, LaSalle Global Solutions

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LaSalle news

Jan 30, 2025 LaSalle and Deeley Freed obtain planning permission for Bristol shopping centre redevelopment Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 28, 2025 LaSalle provides a £100m loan for Apollo’s 699-bed PBSA asset, Pavilion Court, in Wembley Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 10, 2025 LaSalle provides a £68.7 million green loan for Vita’s 540-bed PBSA scheme in central Birmingham Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

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FOR INTENDED INSTITUTIONAL INVESTORS ONLY – NOT FOR GENERAL PUBLIC DISTRIBUTION

INVESTMENT MANAGEMENT

Value-add investing across Asia Pacific

Realizing the value of Asia Pacific real estate.

Asia Pacific real estate 

The Asia Pacific region represents over half of the world’s population and over 40% of its GDP. Structural demand drivers in the region have been supportive of both rents and capital values. We do not expect this trend to change in the near term.

Disciplined investment approach 

The strategy focuses on developed Asia Pacific economies and liquid markets where there is opportunity to create value through repositioning assets and de-risked development. LaSalle’s end goal is to create core assets that will meet long-term investor demand.

Active asset management 

LaSalle’s Asia Pacific asset management team is located across the region and plays a key role in helping to generate returns in the Asia Pacific value-add portfolio of assets. The team has more than 60 investment professionals led by a senior management team which has more than 20 years of experience.

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Strategic, research-based approach 

The ability to harness and synthesize information is key to the success of LaSalle’s Asia Pacific value-add investment team, which regularly draws on the expertise of LaSalle’s data-driven, in-house Research and Strategy team in setting strategy and making investment decisions.

Learn more

For a full description of the risks associated with investing in any investment opportunity, please refer to the “Summary of Risks” the relevant offering memorandum.

Sustainability

LaSalle recognizes that ESG factors, when properly applied, can positively influence investment performance. We tailor our approach to each fund and each asset, working to protect and enhance financial returns today and in the future. We are proud to have achieved a score of A+ from the UN PRI for both strategy and governance and property. We have also committed to being a net zero carbon firm by 2050.

Learn more

*Add source to confirm leading in peer group for sustainability

Important sustainability information

The LaSalle value-add investments team, Asia Pacific

Marc Montanus

Senior Managing Director, Fund Management

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Yen Tjin Chan

Senior Managing Director, Fund Management

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Kunihiko (‘Nick’) Okumura

Chief Executive Officer, Japan

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Claire Tang

Head of Greater China

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LaSalle News

Jan 30, 2025 LaSalle and Deeley Freed obtain planning permission for Bristol shopping centre redevelopment Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 28, 2025 LaSalle provides a £100m loan for Apollo’s 699-bed PBSA asset, Pavilion Court, in Wembley Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 10, 2025 LaSalle provides a £68.7 million green loan for Vita’s 540-bed PBSA scheme in central Birmingham Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

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INVESTMENT MANAGEMENT

LaSalle Global Navigator Fund

A “one-stop-solution” for diversified global real estate.

Commingled equity funds

Rationale: Provides efficient access, liquidity and diversification

Implementation: Closed and open-ended funds managed by established operators, accessible via primary and secondary trades

Target allocation: 30-40%

Joint ventures, clubs and co-investment deals

Rationale: Provides potential access to large transactions and experienced operating partners

Implementation: On-market and off-market opportunities leveraging existing relationships with operating partners and the potential to invest alongside other LaSalle clients

Target allocation: 30-40%

Debt strategies

Rationale: Provides exposure to whole loan and mezzanine debt, providing attractive cash flow, and risk-adjusted returns with downside protection

Implementation: Leverage existing LaSalle GPS and broader LaSalle relationships with high-quality borrowers and senior lending partners

Target allocation: 15-25%

Listed securities

Rationale: Provides access to real estate fundamentals through listed property companies to capture value, maintain some liquidity and access specialist sectors

Implementation: Utilize LaSalle’s Global Securities team for stock selection and trade execution

Target allocation: 5-10%

Target allocations are hypothetical and there can be no assurance they will be realized. Target allocations show the average range targeted by the Fund and are as of the date of this presentation and subject to change without notice. No investment strategy or methodology can reduce all risks of investing in the Fund. For a full description of the risks associated with investing in the Fund, please refer to the “Summary of Risks” the offering memorandum.

Sustainability

The four-star GRESB rating the LaSalle Global Navigator Fund has achieved only conveys a small part of our commitment to sustainability: every day we work to improve the long-term sustainability performance of the buildings in which we invest.

By engaging with our partners and capturing more data on energy efficiency, emissions and other metrics such as resource capture and community benefits, we’re tracking our improvements. And in helping investors meet their own sustainability goals, we aim to realise both superior performance and manage ESG risks.

Learn about our impact

LaSalle Global Navigator Fund example investments

Co-investment

• Core-plus residential strategy
• Multi-family apartments
• Brooklyn, New York, USA
• Unlisted equity investment

Open-ended fund investment

• Value-add residential strategy
• Specialist disability accommodation
• Multi-location, Australia
• Unlisted equity investment

Open-ended fund investment

• Core-plus logistics strategy
• Primary and secondary logistics and industrial assets
• Multi-location, Europe
• Unlisted equity investment

Closed-end fund investment

• Core-plus whole loan strategy
• Multi-location, Northern Europe
• Unlisted debt investment

The LaSalle Global Navigator Fund team

Daniel Witte

Chief Investment Officer, Structured Investments

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Catriona Allen

Senior Fund Manager

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Rachel Fenwick

Chief Operating and Financial Officer

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JB Park

Head of Investor Relations, Asia Pacific

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Eduardo Gorab

Managing Director, Global Research and Strategy

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Kathleen Jowett

Head of Sustainability, LaSalle Global Solutions

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LaSalle news

Jan 30, 2025 LaSalle and Deeley Freed obtain planning permission for Bristol shopping centre redevelopment Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

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Jan 28, 2025 LaSalle provides a £100m loan for Apollo’s 699-bed PBSA asset, Pavilion Court, in Wembley Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 10, 2025 LaSalle provides a £68.7 million green loan for Vita’s 540-bed PBSA scheme in central Birmingham Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

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INVESTMENT MANAGEMENT

LaSalle Property Fund (US)

A diversified portfolio of high-quality core assets across the United States.

Over a decade of performance

Since its inception in 2010, the LaSalle Property Fund has focused on creating and managing a portfolio with an emphasis on property types with strong growth potential and lesser risk of disruption from secular changes.

A diverse portfolio of assets

The Fund’s assets are diversified across major and niche property sectors in major American markets, aiming to provide reliable returns, even when markets stumble. Compared to the OCDE Index, the Fund has longer average leases, higher exposure to emerging sectors such as medical offices and less asset concentration. 

Active asset management 

LaSalle’s asset management team plays a key role in our strategy to generate returns in the Fund’s portfolio of assets. By suggesting and managing improvements to the buildings the Fund owns, they seek to mitigate downside risk and unlock income and value. 

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Strategic investment approach 

The Fund’s Investment Managers work hand-in-hand with LaSalle’s Research and Strategy Team, helping to develop the LaSalle Property Fund’s investment strategy and make sound transactional decisions. 

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For a full description of the risks associated with investing in the Fund, please refer to the “Summary of Risks” in the offering memorandum.

Sustainability

The LaSalle Property Fund’s commitment to strong environmental, social and governance principles is exhibited both at the fund and firm level. The Fund has earned a three-star GRESB rating, while LaSalle has committed to reaching net zero carbon by 2050.

The Fund actively pursues energy, water, and waste efficiency initiatives to reduce its environmental impact and pursues sustainability certifications across the portfolio. And in helping investors meet their own sustainability goals, we aim to realize both superior performance and a better tomorrow. 

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Explore the LaSalle Property Fund portfolio

Residential

Legacy at Highlands Ranch

A high-quality, garden-style apartment community in suburban Denver

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Retail

San Jose Marketcenter

A purpose-built retail center in a highly sought-after retail area.

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Niche

Illumina, San Diego

A partial interest in a world-class life sciences facility

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Niche

Memorial Hermann Medical Plaza

A 28-story medical office building in the world’s largest healthcare complex.

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Niche

Self-storage portfolio

Self-storage facilities in areas of high demand

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The LaSalle Property Fund team

Jim Garvey

Portfolio Manager and President, LaSalle Property Fund

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Alfreda Delle

Deputy Portfolio Manager, LaSalle Property Fund

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Ryan DeReus

Chief Financial Officer, LaSalle Property Fund

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Kevin Dalrymple

Associate Vice President, LaSalle Property Fund

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LaSalle Property Fund news

Jan 06, 2025 LaSalle acquires Tempe Commerce Park in Metro Phoenix, Arizona The five-building industrial complex was acquired on behalf of the LaSalle Property Fund.

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Oct 21, 2024 LaSalle achieves seven 5-star ratings in 2024 GRESB assessment The 2023 Global Real Estate Sustainability Benchmark (GRESB) has recognized 20 LaSalle funds and separate accounts, domiciled across Europe, North America and Asia-Pacific, for their ESG standards.

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Sep 27, 2024 LaSalle acquires Buckeye85, Class A industrial building in Phoenix LaSalle Property Fund has acquired the core industrial building located in the heart of metro Phoenix.

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INVESTMENT MANAGEMENT

Custom accounts

Fully customized portfolios suitable for larger investors.

Absolute return

Custom accounts with an absolute return mandate aim to outperform a specific target, which is reviewed on a regular basis and agreed with the investor.

Long income

Long income mandates aim for a return above inflation or government bonds over the long term; they can be comprised of index-linked leased property, or of a more diversified portfolio, where rental growth is linked to inflation and tends to exclude volatile sectors and locations.

Relative return

Each investor mandate with a relative return target has the objective of meeting a performance target relative to an MSCI benchmark over a certain period.

Tactical

Tactical mandates typically have a specific return expectation, focus and timeframe that varies based on the requirements of the investor.

Active asset management

LaSalle’s asset management team plays a key role in our strategy to generate returns for our investors. By suggesting and managing improvements to properties, they both seek to mitigate downside risk and unlock income and value.

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Strategic investment approach

Investment Managers works hand-in-hand with LaSalle’s Research and Strategy team, helping to develop investment strategy and make sound transactional decisions.

Learn more

For a full description of the risks associated with investing in real estate, please refer to the “Summary of Risks” in the relevant offering document, where applicable.

Sustainability

LaSalle believes that ESG has an essential, material influence on investment performance. We tailor our approach to each custom account and asset, working to protect and enhance financial returns today and in the future. We are proud to have achieved a score of A+ from the UN PRI for both strategy and governance and property. We have also committed to being a net zero carbon firm by 2050.

By capturing data on energy efficiency, emissions and other metrics, we’re tracking our improvements. In helping investors meet their own sustainability goals, we aim to improve performance today and build and a better tomorrow.

Learn more

Explore LaSalle custom account assets

Industrial

Atlanta logistics portfolio

Four newly constructed, Class A logistics warehouses located across suburban Atlanta, Georgia

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Office

Sixty London Wall

Grade A office accommodation with excellent sustainability credentials

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Residential

Pier 8 at The Preserve

A luxury apartment community in suburban Tampa

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Office

222 Exhibition Street, Melbourne

An award-winning, showpiece office tower in Australia’s second-largest city

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Office

2020 K Street

A downtown Washington office property with strong sustainability credentials

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The LaSalle custom accounts team

Adam Donahue

Head of Custom Accounts, Asia Pacific

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Steve Inglis

Portfolio Manager, US Custom Accounts

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Steven Lieb

Portfolio Manager, US Custom Accounts

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Gary Moore

Head of International Accounts, Europe

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Sophie Simmonds

Managing Director, UK Custom Accounts

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LaSalle custom accounts news

Aug 28, 2024 LaSalle acquires Motel One hotel on Tower Hill LaSalle has acquired a modern, 291-bedroom hotel in the City of London on behalf of a UK Custom Account client.

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Jan 29, 2024 Alexandre Arhuis-Grumbach promoted to Head of Transactions Europe, Core and Core+ Strategies, at LaSalle Alexandre will oversee all transactions, across LaSalle’s core and core+ commingled funds and custom accounts in Europe.

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Jan 25, 2024 LaSalle appoints Multiplex to construct landmark London office development, One Exchange Square The state-of-the-art, 447,000 square foot office development is located at Broadgate Campus in the City of London.

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INVESTMENT MANAGEMENT

LaSalle Encore+

Established and managed with a location and performance-driven strategy.

Long-term thinking

The Fund management team’s long-term thinking has provided robust returns over the life of the fund, which has spanned both the Global Financial Crisis of 2008 and the Covid-19 pandemic. Please note that past performance does not predict future returns.

Diversity for income security 

LaSalle Encore+’s assets are diversified across all major property sectors with the aim of providing reliable income. 

Active asset management 

Our asset management team plays a key role in our strategy to generate returns for the LaSalle Encore+ portfolio. By overseeing improvements to the Fund’s assets, they seek to mitigate downside risk and aim to unlock income and value. 

Discover Asset Management

Strategic investment approach 

The LaSalle Encore+ team works hand-in-hand with our research colleagues, whose recommendations and insights help to develop the Fund’s investment strategy. 

Read our insights

For a full description of the risks associated with investing in the Fund, please refer to the “Summary of Risks” the offering memorandum.

Sustainability

Every day, the LaSalle Encore+ team works to improve the long-term environmental performance of the Fund’s assets. We work closely with tenants to understand their energy needs and help them meet their own commitments.

By working together to improve energy efficiency, lower emissions and capture resources such as sunlight and rainwater, we’re working to improve performance today and build a better tomorrow. 

Learn about our impact

Explore the LaSalle Encore+ portfolio

Office

Trí, Munich

Two prime office buildings in Munich’s vibrant Westend

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Industrial

Isle d’Abeau, France

A new-build asset located along France’s “logistics backbone” with good access to population centers in three countries

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Industrial

Tigery, Lyon

A new-build logistics warehouse southeast of Paris with access to the A5 Autoroute and the Francilienne (Paris ring road)

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The LaSalle Encore+ team

David Ironside

Fund Manager, LaSalle Encore+

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Marianne Hemon-Laurens

Deputy Fund Manager, LaSalle Encore+

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Alexandre Arhuis-Grumbach

Head of Transactions Europe Core and Core+ Strategies

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Max Walmsley

Senior Portfolio Manager

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Yacine Touré

Associate, Fund Management

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Adrien Anrès

Senior Analyst, Fund Management

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Luca Benattar

Senior Analyst, Fund Management

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LaSalle Encore+ news

Nov 07, 2024 LaSalle completes Toulouse senior living development The facility was acquired under a VEFA contract in December 2021 on behalf of Encore+, LaSalle’s flagship pan-European core-plus fund.

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Oct 21, 2024 LaSalle achieves seven 5-star ratings in 2024 GRESB assessment The 2023 Global Real Estate Sustainability Benchmark (GRESB) has recognized 20 LaSalle funds and separate accounts, domiciled across Europe, North America and Asia-Pacific, for their ESG standards.

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Sep 11, 2024 LaSalle leases 69 Boulevard Haussmann in Paris to FLEX-O LaSalle has agreed a lease of a landmark office building in Paris with a provider of premium coworking and office spaces.

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FOR INTENDED INSTITUTIONAL INVESTORS ONLY – NOT FOR GENERAL PUBLIC DISTRIBUTION

INVESTMENT MANAGEMENT

Logistics investments in China

A portfolio of modern logistics facilities across China.

The growing market in China

China’s modern warehouse sector is anchored on the country’s large population and economic base and its long-term fundamental growth drivers. The ongoing structural changes in China and the rapid growth of e-commerce also create potential for a favorable risk-adjusted return profile.

Disciplined investment approach

We rely on a robust in-house market analysis framework to evaluate 66 major cities in China based on factors such as growth potential, transportation connectivity and government support. Through our disciplined approach to location selection we aim to minimize leasing risk and invest in stable projects.

On-ground specialists with established local partnerships

The team comprises more than 20 professionals and a senior team with 20 years of experience, sourcing off-market deals through programmatic joint ventures with local partners.

Strategic, research-based approach

The ability to harness and synthesize information is key to the success of the China logistics investment team, which regularly draws on the expertise of LaSalle’s data-driven, in-house Research and Strategy team in setting strategy and making investment decisions.

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For a full description of the risks associated with investing in any investment opportunity, please refer to the “Summary of Risks” the relevant offering memorandum.

Sustainability

At LaSalle, we are addressing the physical and transitional risks associated with the impacts of climate change and the move to a decarbonized world, with action across all areas of our business. When properly applied, we recognize sustainability criteria can positively influence investment performance.

Within the scope of our fiduciary duty, we use a tailored approach to each asset and portfolio, with each designed to protect and enhance financial returns, today and in the future.

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The Chinese logistics team

Claire Tang

Head of Greater China

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Yen Tjin Chan

Senior Managing Director, Fund Management

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LaSalle China logistics investment news

Oct 21, 2024 LaSalle achieves seven 5-star ratings in 2024 GRESB assessment The 2023 Global Real Estate Sustainability Benchmark (GRESB) has recognized 20 LaSalle funds and separate accounts, domiciled across Europe, North America and Asia-Pacific, for their ESG standards.

Learn more

Jan 15, 2024 LaSalle records strong results in GRESB Assessment and ‘Principles for Responsible Investment’ 5 min read The 2023 Global Real Estate Sustainability Benchmark (GRESB) has recognized 20 LaSalle funds and separate accounts, domiciled across Europe, North America and Asia-Pacific, for their ESG standards.

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Nov 08, 2022 LaSalle records high marks in GRESB Assessment and ‘Principles for Responsible Investment’ 5 min read Within the 2022 Global Real Estate Sustainability Benchmark (GRESB), 18 of the firm’s funds and separate accounts have been recognized again for their ESG standards.

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INVESTMENT MANAGEMENT

LaSalle Canada Property Fund

A diversified portfolio of high-quality core assets across Canada.

Canadian real estate 

Canada is of the few top-rated sovereign markets with a sizable, transparent real estate market, with income yields being attractive compared to sovereign bonds. Demographic changes of strong population growth, a highly educated workforce and a service-oriented economy point to continued demand. 

Diversity for income security 

The Fund’s assets are diversified across all major property sectors and across major Canadian markets, including Toronto, Montréal, Vancouver, Ottawa, Calgary and Edmonton to which aims to provide reliable returns. 

Active asset management 

Toronto and Vancouver-based asset managers are within a day’s reach of all major Canadian markets. They play a key role in our strategy to generate returns from our assets. By suggesting and managing improvements to the buildings the Fund owns, they seek to mitigate downside risk and aim to unlock income and value. 

Learn more

Strategic investment approach 

The Fund’s Investment Managers work hand-in-hand with LaSalle’s Research and Strategy Team, helping to develop the Fund’s investment strategy and make sound transactional decisions. 

Learn more

For a full description of the risks associated with investing in the Fund, please refer to the “Summary of Risks” the offering memorandum.

Sustainability

The LaSalle Canada Property Fund’s five-star GRESB rating only conveys a small part of our commitment to sustainability; the Fund’s Airport Square property was one of the first ever office buildings in Canada to achieve Energy Star certification, and 100% of the Fund’s office and industrial holdings are LEED or BOMA BEST certified.

By working to improve energy efficiency, lower emissions and capture resources such as sunlight and rainwater, we’re working to improve performance today and build a better tomorrow. 

Learn more

Explore the LaSalle Canada Property Fund portfolio

Office

275 Slater, Ottawa

A revitalized office building in Ottawa’s central business district.

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Office

Airport Square, Vancouver

A South Vancouver office tower with strong environmental credentials

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Retail

Guildford Town Centre

One of Canada’s most productive shopping centers in a rapidly growing area

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Office

Maison Manuvie, Montréal

An award-winning office building in downtown Montréal with strong environmental credentials.

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Residential

Rideau & Chapel, Ottawa

A new-build residential and retail development in the heart of Canada’s capital

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Industrial

Toronto Industrial Portfolio

Strategically located warehouse facilities serving the Greater Toronto Area

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The LaSalle Canada Property Fund team

John McKinlay

Chief Executive Officer, Canada

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Michael Fraidakis

Chief Investment Officer, Canada

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Sam Barbieri

Managing Director, Development and Fund Management

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Amy Barsich

Managing Director, Fund CFO

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Chris Langstaff

Canada Head of Research and Strategy

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LaSalle Canada Property Fund news

Oct 21, 2024 LaSalle achieves seven 5-star ratings in 2024 GRESB assessment The 2023 Global Real Estate Sustainability Benchmark (GRESB) has recognized 20 LaSalle funds and separate accounts, domiciled across Europe, North America and Asia-Pacific, for their ESG standards.

Learn more

Jan 15, 2024 LaSalle records strong results in GRESB Assessment and ‘Principles for Responsible Investment’ 5 min read The 2023 Global Real Estate Sustainability Benchmark (GRESB) has recognized 20 LaSalle funds and separate accounts, domiciled across Europe, North America and Asia-Pacific, for their ESG standards.

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Feb 14, 2023 LaSalle Canada Property fund celebrates five-year anniversary 4 min read Celebrating the five year anniversary of the LaSalle Canada Property Fund.

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Alternative lending solutions

Lending in Europe

A wide range of debt capital and lending solutions for real estate owners

Why choose us?

• We are one of the most active non-bank lenders in Europe with over €6.0 billion of lending since 2010.
• The team has invested across a broad range of real estate sectors throughout Western Europe, including residential, student housing, hotels, logistics, data centers, self storage, healthcare, life sciences, medical, innovation centers and office.
• Our dedicated lending team of professionals includes individuals fluent in English, French, German, Italian and Spanish.  
• LaSalle’s financing solutions can be customised to suit your funding needs. 

Senior-secured loans

Senior-secured loans

• Stretched senior loans for investment / transitional assets 
• Up to 85% LTV / LTC 
• 3-7+ year typical term 

Mezzanine finance

Mezzanine finance

• Mezzanine loans for both investment / transitional assets 
• Up to 85% LTV / LTC 
• 3-5+ year typical term 

Development finance

Development finance

• Whole loans and mezzanine finance for real estate development projects 
• Up to 85% LTC 
• 2-5 year typical terms
• Ability to offer fixed-rate loans

Special situations

Special situations

• Preferred equity notes / corporate loans / bank capital relief / structured debt buy-back facilities / fund NAV facilities
• Bespoke solutions available
• 2-5 year typical terms

Example loans

Senior-secured loan

€94 million

senior secured facility to finance the acquisition and capex of a pan-European portfolio of logistics and light industrial real estate assets.

Mezzanine loan

€326 million

mezzanine loan to finance the refinancing and refurbishment programme of a portfolio of Iberian hotels.

Development finance

£148 million

whole loan to finance the ground-up development of a well-located and amenitised student housing development in central London.

Looking to invest in European real estate debt? Visit our real estate debt investments page.

European loan originations team

Michael Zerda

Head of Debt and Value-Add Strategies, Europe

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David White

Head of Real Estate Debt Strategies, Europe

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Nathan Jackson

Director, European Debt Investments

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Bobby Fay

Director, European Debt Investments

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European lending news

Jan 30, 2025 LaSalle and Deeley Freed obtain planning permission for Bristol shopping centre redevelopment Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 28, 2025 LaSalle provides a £100m loan for Apollo’s 699-bed PBSA asset, Pavilion Court, in Wembley Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 10, 2025 LaSalle provides a £68.7 million green loan for Vita’s 540-bed PBSA scheme in central Birmingham Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

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INVESTMENT MANAGEMENT

Private debt

Connecting real estate investors to capital borrowers.

LaSalle news

Jan 30, 2025 LaSalle and Deeley Freed obtain planning permission for Bristol shopping centre redevelopment Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 28, 2025 LaSalle provides a £100m loan for Apollo’s 699-bed PBSA asset, Pavilion Court, in Wembley Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

Jan 10, 2025 LaSalle provides a £68.7 million green loan for Vita’s 540-bed PBSA scheme in central Birmingham Located on Gough Street, the asset will benefit from excellent rail, bus and tram links and help address the undersupply of student housing in the market.

Learn more

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