#Entrepreneurs — 26.08.2020

Elite Entrepreneurs drive into safe haven real estate

2020 BNP Paribas Global Entrepreneur Report

Amid Coronavirus concerns and historically low interest rates, the world’s top business founders are targeting real estate as a priority investment asset class.

2020 Global Entrepreneur Report I BNP Paribas Wealth Management

Elite Entrepreneurs are using historically low interest rates to their advantage, upping their allocations to real estate and adding leverage to maximise returns, according to a survey of more than 1,100 wealthy business owners worldwide.

The BNP Paribas 2020 Global Entrepreneur Report found Elite Entrepreneurs expect to nearly double their exposure to private real estate over the following 12 months. Property will on average represent 18% of their portfolio, up from 10% previously, respondents predicted.

Of the 1,132 entrepreneurs surveyed, nearly three-quarters hold private real estate investments. Around one-third of these property owners have invested in real estate abroad, with China, the United States and France the most popular markets.

“High-net-worth individuals are attracted to private real estate for many different reasons. It’s a tangible asset, a way for clients to maximise the risk-return profile of their portfolio and a way to receive regular income. Private real estate is also perceived as a hedge against inflation.”

Claire Roborel de Climens, Global Head of Private and Alternative Investments at BNP Paribas Wealth Management

Interest rates were already low prior to the coronavirus pandemic as governments sought to reinvigorate stuttering economies. Now, with a global recession seemingly inevitable, rates could turn negative. That should be a boon for real estate, which as an alternative asset class also offers all-important portfolio diversification.

“We see a lot of potential here. Alternatives can have stabilising effects on portfolios because they are uncorrelated to traditional assets so 20-25% portfolio allocations are not unrealistic.”

Luc Leclere, International Europe Market Manager at BNP Paribas Wealth Management

THE LURE OF REAL ESTATE

Two-thirds of entrepreneurs invest in real estate directly. Yet high valuations in many markets have depressed yields so as well as direct property investments, entrepreneurs are increasingly participating in higher-risk, opportunistic and value-added real estate funds to boost returns.

Similarly, two-fifths of entrepreneurs participate in club deals in which investors pool their money to buy a particular property. This both spreads the risk and enables them to own a stake in an asset that would otherwise be beyond their means.

Private real estate typically outperforms the likes of stocks and bonds during downturns, while the prospect of cheap borrowing is enticing for entrepreneurs wishing to maximise their real estate exposure through leverage.

In Europe, research shows property investors can achieve high single-digit yields with leverage of 50-60%, for example.

These factors help make real estate appear to be an asymmetric bet – to the upside, there’s the prospect of their assets rising steadily in value should the economy prosper and steady income from rents, while were a recession to be prolonged, the illiquid nature of real estate helps protect against sudden price declines – unlike stock markets, for example.

Yet entrepreneurs’ determination to expand their real estate holdings is not without dangers.

“Private real estate can be very risky so seeking expert advice is key. To minimise the impact of cycles, we advise clients to invest regularly so funds are deployed over 4 to 5 years.”

Claire Roborel de Climens, Global Head of Private and Alternative Investments at BNP Paribas Wealth Management