By Robert Laurence (Fosun Global Partner; CEO, Resolution Property)
Our Journey Together
Success is both a journey and a destination, the key element is always to be learning.
It has now been five years since Resolution joined the Fosun family and our common journey began.
For myself it has been particularly interesting from both a business and intellectual perspective. Although my background is in history, law, investment banking and European real estate backed by USA investors, my vision has been substantially broadened by having the strength and breath of a dynamic multi-faceted group like Fosun on the same team and by this being my first business relationship with China.
I have to say, it keeps me young! I have plenty of practice at being open to new ideas because I have 7 children the older ones have been to some of the top universities in the UK and USA, they make sure I have to stay focused on the current trends and new thoughts in order not to be left behind. It has been good preparation for joining an even bigger family at Fosun, and I really do feel Fosun is my family, and like every family relationship you need to make effort to keep it in good shape, and always listen and learn.
Understanding and navigating a new business and a new culture has been stimulating and rewarding. I have not only been learning different perspectives and ideas from Chairman Guo and the Board down to the function teams in Shanghai. There is always a new idea, a new angle a new vision. It’s a symbiotic journey both from Fosun to Resolution and from China to Europe. The advantage of a background as an historian is that the big picture, the sweep of history, and the rise of a Chinese influence and Fosun’s influence on the world stage can be clearly identified as part of the same inevitable historical trend. This cultural and intellectual adventure has been underpinned by strong underlying principles shared across our platforms. It has been based on respect for tradition but positioned to be at the forefront of a changing world. Much like Fosun stands out amongst its domestic and global peers, we at Resolution understand that it takes experience, expertise, and innovation to thrive.
Since becoming a Global Partner, I have challenged myself to instil a closed loop philosophy across the region, with a view to fostering unity and dynamism amongst European and global group companies. Good progress has been made on improving collaboration amongst global partners and senior management, allowing us to promote best practice and identify synergies and investment opportunities. This collaboration mechanism was proven to be particularly valuable during the COVID pandemic, when we are able to leverage this support group for not only information sharing, but also initiatives in sourcing and later marketing PPEs and fashion masks.
A key area of focus during these discussions has been the importance of our C2M strategy. Fosun, by virtue of its scale and diversified holdings, is uniquely placed to execute and benefits from such a strategy. Internally, we continue to emphasize global perspectives and continuous learning with a view to taking our global platform to the next level. One way in which this could be achieved is by consolidating our sub-scale and fragmented platforms In Europe into a single entity, with greater financial and human capital to drive faster growth.
At Resolution, our approach to C2M results in a constant focus on identifying and adapting to our tenants and capital providers pain points and needs. In doing so, we can adapt our product set, distribution channels and investment strategies to ensure the best possible outcomes for our stakeholders.
European Investment Opportunities
The unprecedented health crisis we are currently living through has wreaked havoc on financial markets, medical care, and the prospects from the global economy. This black-swan event certainly has long-term implications for investors, but it’s important to note that it has primarily accelerated, or exacerbated, previously existing trends. The retrenchment of globalisation looks set to gather pace, as governments look to onshore critical infrastructure and corporates focus on shortening their supply chains. Meanwhile, debt levels (both sovereign and corporate) had already been rising since the 2008 crisis and are now set to increase further.
The hunt for yield will become more acute than ever and real estate should emerge as compelling asset class. That said, we are under no illusion that the sector faces its own set of stark challenges. The crisis has had a material impact on the way people live, work and play. Social distancing has directly changed the way people inhabit and interact with physical space, and the knock-on effects of the virus have materially impacted the demand for many types of space. How much of this change will become permanent is difficult to foresee, but we do not expect all things to go back to normal.
With yields trading at or near historic lows across much of Europe, we continue to believe that the CEE region will provide attractive risk-return profile as country risk can be mitigated by careful stock selection, with an initial bias for Core+ assets with EUR denominated income from international credits. The structural changes expected to shape the new normal, driven by governments and companies onshoring and shortening their supply chains, will benefit the CEE region due to its proximity to Western Europe and strategic placement along the eastern corridor. We are also focused on flagship prime buildings in London and other gateway cities where we are able to buy at a discount because of the current Covid crisis.
Whilst individual property fundamentals remain key, we have spent a lot of time assessing all real estate sub-sectors to identify the likely winners and losers in the new normal.
We expect office demand to dip in the near-term, but businesses will ultimately require more space to accommodate the potential for future social distancing requirements. We expect increased demand for value-conscious locations with less reliance on mass-transportation and superior parking provisions and special flexibility. On the other hand, we expect corporate demand for office suites in super prime CBD premises to rise, with a view to attracting talent, impressing clients and holding key meetings.
Beyond offices, and in line with the group’s focus on health, wealth and happiness, we are particularly drawn to demographic megatrends including ageing, education, and a rising global middle class. As such, we are actively working on a number of interesting opportunities in the healthcare, senior living, student housing and hospitality sectors. These sectors are attractive real estate and op co sub-sectors in their own right. Investment in Europe’s senior housing sector in H1 2020, had a 25% increase year-on-year. European student housing is becoming increasingly attractive to institutional investors due to the market’s non-cyclical nature and significant undersupply in major university cities across the continent. The real opportunity, however, often lies at the operating level, and we are keeping a close eye on Round-Trip investment opportunities with expansion potential in China. This is where we have been able to harness the true power of Fosun by leveraging our group’s expertise, including Yu Garden, and the tourism and pharma groups. The successful implementation of a closed-loop philosophy makes us uniquely placed to target world class brands, leading operators, and other global resources, including technology, with strong China roll-out potential.
We look forward to continuing our journey, working in ever closer relationships within the Fosun family as we challenge ourselves to grow as an organisation through perpetual learning and investment execution.