Entrepreneur and Private Real Estate: Love story
2020 BNP Paribas Global Entrepreneur Report
Private Real Estate has always had a special place at the heart of most investors’ portfolios for several reasons. First, it’s a unique, tangible asset and second, it has an actual use value that does not depend on the fluctuations of volatile financial markets. Therefore, Private Real Estate is a core constituent of most portfolios with the aim of achieving long-term returns across economic cycles.
BNP Paribas Wealth Management has recently released its Global Entrepreneur Report Part II focused on private investments, including Private Equity and Private Real Estate. The report polled 1,132 entrepreneurs globally with average investable wealth in excess of $16 million. The vast majority (73%) of this Elite Entrepreneur population is actively involved in Private Real Estate, with almost a third (31%) having overseas private real estate investments. Furthermore, this elite population expects to increase its wealth allocation to the asset class from 10% in 2019 to 18% in the next 12 months.
“The adage “Safe as houses” neatly summarises a commonly found sentiment that real estate is perceived to be a safe investment by global entrepreneurs.” BNP Paribas Global Entrepreneur Report 2020 Part II
Such increased allocation comes from a strong familiarity with the asset class as well as a solid confidence about the safe character of real estate. In the Global Entrepreneur Part I, more than half of these entrepreneurs do not view real estate or cash as a risky asset class. Older entrepreneurs – “Boomerpreneurs”, aged 55 and above – are even more inclined to be comfortable with the underlying risk of the asset class (63% of them).
While the love story between entrepreneurs and real estate is almost universal, there are still some significant variations in outlook depending on the geographical origin, gender, amount of investable wealth or age of the entrepreneur.
“In Asia, there is a bias towards real estate because we’ve just come through a two-decade property boom. There’s been a big appreciation, we have a subset of UHNWs who’ve made their wealth in property and so they’re comfortable with the asset class and gravitate towards it.”
Prashant Bhayani, Chief Investment Officer (Asia) at BNP Paribas Wealth Management
The overall view on the asset class is similar between men and women. Female entrepreneurs tend to view real estate more as a diversification opportunity (41% vs 32% for male) representing a good edge against inflation (41% vs 35%) that can be passed to the next generation (38% vs 27%), while male entrepreneurs tend to see real estate as a way to minimize risk (37% vs 32%).
Looking at the findings through the prism of generation brings other interesting insights. Older entrepreneurs are much more likely to believe the potential return of the asset class to be higher than younger generations (33% for Boomerpreneurs vs 14% for “Millennipreneurs”, aged 35 yo and below). Boomerpreneurs like the tangible characteristics of the assets (50% vs 25%). Conversely – and surprisingly -, Millennipreneurs praise the ability to pass the investment to the next generation (48%) while less than 20% of Boomerpreneurs highlight the same trait.
The difference in outlook also comes from geographic origin. While European and US entrepreneurs have very similar views on the asset class, Middle East investors value not only the ability to pass the assets to the next generation (close to 60%, vs c. 30% in Europe and USA and below 20% in APAC) but also the perceived simplicity of real estate (c. 60% vs below 40% in APAC and below 30% in Europe and USA). They are also much less likely to consider such investments as a hedge against inflation (c. 25% vs c. 30% in APAC and close to 40% in Europe and USA).
However, despite some differences, entrepreneurs overwhelmingly view real estate as an asset class they understand and are comfortable with. The spike in volatility on the markets during the Covid-19 crisis and the unprecedented period of confinement that most of the developed world has had to go through over the past few months have spurred a new outlook on real estate, both in the light of the new trend of Work-From-Home – with related impact on city centers and office spaces - but also in terms of confinement places. This new outlook will no doubt reinforce the role of real estate at the heart of investors’ outlook. However, some segments of the real estate market could diverge from others. For example, retail or office real estate could be impacted by the consequences of the Covid-19 crisis in terms of acceleration of the digital transformation of society in a very different way than residential or logistics real estate.
Real estate has been a darling asset class for investors for generations, and clearly, based on the findings in our Global Entrepreneur Report 2020, the love story continues and strengthens, albeit possibly with significant differences for various subsegments.