Credit: JLLWenceslao Bunge: Are we poised for vintage gold or are the best days behind us?
JLL Global Chairman Real Estate Investment Banking, Wences Bunge, optimistically addresses looming threats to European real estate
August 22, 2024Real Estate
Written by Helen Richards
“What is normal now is that nothing is normal,” says Wenceslao Bunge, also known as Wences.
After 30 years at Credit Suisse, Wences joined JLL in 2022 as Global Chairman of the Real Estate Investment Banking division, along with a team of over a dozen professionals from Credit Suisse, to complement and strengthen JLL’s existing team of investment bankers.
Ahead of his participation at Europe GRI 2024, where he will be chairing the first day’s opening session, Wences sat down with GRI Club for an exclusive interview, sharing his perspectives on the real estate market and the wider industry, considering the ongoing volatility.
Is real estate still the game to be in? Will the US real estate crisis have such grave repercussions for Europe? How are investors finding value in such an unpredictable market?
You will be speaking during the fireside chat at Europe GRI 2024. As the session title asks, are we poised for vintage gold or are the best days behind us?
“I always say that I'm an optimist. And, that's why I'm on the advisory side and not the principal side. If you're on the principal side, you have to be much more bearish. When you're on the advisory side, you tend to be more bullish. As I consider myself an optimist, which aligns itself more with the bullish side, I do think that the worst is behind us.
As we are holding this interview, we're seeing extreme volatility in the markets. It's normal to see some adjustments, but for the adjustments that have happened, or are in the process of happening, we have not seen the volumes come back.
However, I don’t believe interest rates are going to go up again, and we haven’t seen the level of leverage that we saw back before the GFC, and so I strongly believe that the worst is behind us.”
How do you see the ripple effects of the US real estate market on Europe playing out? Is there a real risk of a crisis?
“The US has always been much faster to react, and the crisis in the US is more severe. In general, there's a lot more volatility there than in the European markets, and there’s a set of reasons for that. One is liquidity, but the other is leverage. Leverage is used much more aggressively in the US than in Europe.
There is always a ripple effect in Europe 1-2 years after the US, but we aren’t seeing a pronounced crisis, or enough volatility to provoke a crisis like that of the US.”
How do you foresee inflation and interest rates evolving in the coming year, and the next 5 years? What impact will this have on the real estate market?
“What is normal now is that nothing is normal. It was not normal to see the interest rate level that we saw for such a long time in the global markets, in the US, and in the main developed markets. That was not normal. What we're seeing now, the rapid increase in interest rates over the last 18-24 months, is also not normal, and I don't believe that interest rates can stay that high.
There's a consensus in the market that they will come down, but they will not reduce to the historically low level that we saw a couple of years ago, where there was a need to inject liquidity into the system. We won’t see that for a long time.
So, what is the number? It's difficult to predict, and if you ask ten economists, you'll have fifteen or twenty different answers, because they're always going to hedge themselves. I think that we're going to see rates in the range of 2% and 4%. Those are more normalised levels within the perspective that everyone has on inflation to come.”
What is the number one challenge your clients are facing in relation to capital markets?
“It depends on which position the client is in. If the client is a holder of assets and has a timeline managing a fund, the timing of selling assets is challenging right now, as they don’t get the valuations they expect.
If your client has capital to invest in general, they feel that the opportunities are not there yet. If they need to refinance, although debt is coming back, it is not coming back to the level that we're used to seeing.
Then, you can assess the different asset classes. If you're a holder of offices, you have different challenges than if you're an investor in residential. If you're an investor in residential, your challenge is finding the right returns or the right opportunities, because everyone is chasing very similar assets. If you're a holder of offices, the challenge is the market’s severe adjustments, and there's still a lot of question marks on where that market is going.”
In an unpredictable and high inflation environment, how are investors finding value and remaining competitive in real estate?
“It's going back to basics. With low interest rates, investors were finding value in playing more of a financial game than working on an industrial approach. Right now, with high inflation, investors must add value into what they’re doing; repositioning an asset or knowing that with a certain CapEx the asset will give a different result.
It's not so much about buying and selling; it's not such a financial game; it’s much more of a property game right now, and that's why I say it's back to basics.
The world has always grown with a positive spread between yield and interest rates, but for a period of time now, we have been facing a negative spread. We're now moving slowly back to positive spreads and that's when the sector will stabilise.”
Which types of real estate assets currently have higher liquidity, and which ones are experiencing lower liquidity? What factors are contributing to this?
“There are many new asset classes attracting a lot of interest from investors. The living sector is one that was not as institutional as it is now. The whole sector is getting a lot of attention.
People also didn't like hospitality in the way that they are looking at it now, which is an effect of the growth of leisure and travel as a whole. And, it's not only reflected in real estate, but also in the travel, entertainment, and leisure sectors.
Then, we have everything that touches on technology. There is a huge appetite for data centres. It’s not only real estate; it's a combination of real estate and infrastructure, and the investment volumes are becoming very sizable. What is interesting in this sector is the huge concentration of tenants, resulting in a narrow market for very large data centres. Life sciences is another sector that is growing and not as institutionalised as some other sectors.
The main sector going through headwinds, and therefore creating opportunities, is offices. Retail was in the same shape, but in certain cities and asset classes, retail is experiencing a recovery. People are still trying to understand what will happen in the office sector. I'm not a believer that it will disappear. I always believe that real estate is volatile and it's cyclical, but right now we are at the bottom of the cycle for offices.”
Is real estate still the game to be in? Where is the appetite for real estate investments coming from?
“I'm a believer, and I put my money where my mouth is. I was at an investment bank for thirty years, and during my last 6-7 years I was not doing real estate; I was on the management side, as the bank’s CEO for the EU. I decided to change my career and join a real estate company, as opposed to a bank, because of my belief in the industry, and my belief that the industry is becoming more and more institutional, and more and more professional.
It’s a sector that has a lot of interesting aspects to play in as an investor and as an advisor. It offers opportunities for people that know how to play, and something I admire about JLL is how we have managed to integrate proprietary technology into our data systems, offering a differentiating factor to clients.
This is something we're very focused on, both on the real estate investment banking side, and in the way that we service our clients on the general capital markets side. Technology plays a huge role for JLL.
So, you ask if real estate is still the game to be in? I say: stay focused on what you do, and do it well. If you do what you do well, you will always find opportunities.”
Join Wences and 700+ other C-level executives and heads of real estate at Europe GRI 2024, on 10-11th September in Paris.
“What is normal now is that nothing is normal,” says Wenceslao Bunge, also known as Wences.
After 30 years at Credit Suisse, Wences joined JLL in 2022 as Global Chairman of the Real Estate Investment Banking division, along with a team of over a dozen professionals from Credit Suisse, to complement and strengthen JLL’s existing team of investment bankers.
Ahead of his participation at Europe GRI 2024, where he will be chairing the first day’s opening session, Wences sat down with GRI Club for an exclusive interview, sharing his perspectives on the real estate market and the wider industry, considering the ongoing volatility.
Is real estate still the game to be in? Will the US real estate crisis have such grave repercussions for Europe? How are investors finding value in such an unpredictable market?
You will be speaking during the fireside chat at Europe GRI 2024. As the session title asks, are we poised for vintage gold or are the best days behind us?
“I always say that I'm an optimist. And, that's why I'm on the advisory side and not the principal side. If you're on the principal side, you have to be much more bearish. When you're on the advisory side, you tend to be more bullish. As I consider myself an optimist, which aligns itself more with the bullish side, I do think that the worst is behind us.
As we are holding this interview, we're seeing extreme volatility in the markets. It's normal to see some adjustments, but for the adjustments that have happened, or are in the process of happening, we have not seen the volumes come back.
However, I don’t believe interest rates are going to go up again, and we haven’t seen the level of leverage that we saw back before the GFC, and so I strongly believe that the worst is behind us.”
“Real estate is much more of a property game right now, and that's why I say it's back to basics.” (Credit: Europa Press)
How do you see the ripple effects of the US real estate market on Europe playing out? Is there a real risk of a crisis?
“The US has always been much faster to react, and the crisis in the US is more severe. In general, there's a lot more volatility there than in the European markets, and there’s a set of reasons for that. One is liquidity, but the other is leverage. Leverage is used much more aggressively in the US than in Europe.
There is always a ripple effect in Europe 1-2 years after the US, but we aren’t seeing a pronounced crisis, or enough volatility to provoke a crisis like that of the US.”
How do you foresee inflation and interest rates evolving in the coming year, and the next 5 years? What impact will this have on the real estate market?
“What is normal now is that nothing is normal. It was not normal to see the interest rate level that we saw for such a long time in the global markets, in the US, and in the main developed markets. That was not normal. What we're seeing now, the rapid increase in interest rates over the last 18-24 months, is also not normal, and I don't believe that interest rates can stay that high.
There's a consensus in the market that they will come down, but they will not reduce to the historically low level that we saw a couple of years ago, where there was a need to inject liquidity into the system. We won’t see that for a long time.
So, what is the number? It's difficult to predict, and if you ask ten economists, you'll have fifteen or twenty different answers, because they're always going to hedge themselves. I think that we're going to see rates in the range of 2% and 4%. Those are more normalised levels within the perspective that everyone has on inflation to come.”
What is the number one challenge your clients are facing in relation to capital markets?
“It depends on which position the client is in. If the client is a holder of assets and has a timeline managing a fund, the timing of selling assets is challenging right now, as they don’t get the valuations they expect.
If your client has capital to invest in general, they feel that the opportunities are not there yet. If they need to refinance, although debt is coming back, it is not coming back to the level that we're used to seeing.
Then, you can assess the different asset classes. If you're a holder of offices, you have different challenges than if you're an investor in residential. If you're an investor in residential, your challenge is finding the right returns or the right opportunities, because everyone is chasing very similar assets. If you're a holder of offices, the challenge is the market’s severe adjustments, and there's still a lot of question marks on where that market is going.”
In an unpredictable and high inflation environment, how are investors finding value and remaining competitive in real estate?
“It's going back to basics. With low interest rates, investors were finding value in playing more of a financial game than working on an industrial approach. Right now, with high inflation, investors must add value into what they’re doing; repositioning an asset or knowing that with a certain CapEx the asset will give a different result.
It's not so much about buying and selling; it's not such a financial game; it’s much more of a property game right now, and that's why I say it's back to basics.
The world has always grown with a positive spread between yield and interest rates, but for a period of time now, we have been facing a negative spread. We're now moving slowly back to positive spreads and that's when the sector will stabilise.”
“I decided to change my career and join a real estate company, as opposed to a bank, because of my belief in the industry.” (Credit: Photocreo Bednarek)
Which types of real estate assets currently have higher liquidity, and which ones are experiencing lower liquidity? What factors are contributing to this?
“There are many new asset classes attracting a lot of interest from investors. The living sector is one that was not as institutional as it is now. The whole sector is getting a lot of attention.
People also didn't like hospitality in the way that they are looking at it now, which is an effect of the growth of leisure and travel as a whole. And, it's not only reflected in real estate, but also in the travel, entertainment, and leisure sectors.
Then, we have everything that touches on technology. There is a huge appetite for data centres. It’s not only real estate; it's a combination of real estate and infrastructure, and the investment volumes are becoming very sizable. What is interesting in this sector is the huge concentration of tenants, resulting in a narrow market for very large data centres. Life sciences is another sector that is growing and not as institutionalised as some other sectors.
The main sector going through headwinds, and therefore creating opportunities, is offices. Retail was in the same shape, but in certain cities and asset classes, retail is experiencing a recovery. People are still trying to understand what will happen in the office sector. I'm not a believer that it will disappear. I always believe that real estate is volatile and it's cyclical, but right now we are at the bottom of the cycle for offices.”
Is real estate still the game to be in? Where is the appetite for real estate investments coming from?
“I'm a believer, and I put my money where my mouth is. I was at an investment bank for thirty years, and during my last 6-7 years I was not doing real estate; I was on the management side, as the bank’s CEO for the EU. I decided to change my career and join a real estate company, as opposed to a bank, because of my belief in the industry, and my belief that the industry is becoming more and more institutional, and more and more professional.
It’s a sector that has a lot of interesting aspects to play in as an investor and as an advisor. It offers opportunities for people that know how to play, and something I admire about JLL is how we have managed to integrate proprietary technology into our data systems, offering a differentiating factor to clients.
This is something we're very focused on, both on the real estate investment banking side, and in the way that we service our clients on the general capital markets side. Technology plays a huge role for JLL.
So, you ask if real estate is still the game to be in? I say: stay focused on what you do, and do it well. If you do what you do well, you will always find opportunities.”
Join Wences and 700+ other C-level executives and heads of real estate at Europe GRI 2024, on 10-11th September in Paris.
