JPMorgan Chase & Co. (JPM)’s asset management unit intends to quadruple its holdings of European commercial property in need of renovations or new tenants as well-occupied buildings in good condition become too expensive.
The company plans to raise its ownership of “opportunistic” properties in the region to about 4 billion euros ($5.4 billion) over three years, according to Peter Reilly, the company’s head of European real estate. During that time, the New York-based investor will acquire less lower-risk, or core, real estate.
“In the next three years our buying activity will probably be 80 percent opportunistic, whereas through 2012 it was 80 percent core,” Reilly said in an interview. “Our buy activity shifts as the capital market shifts.”
Investors like JPMorgan Asset Management, which holds about $63 billion of real estate, rushed to the safety of Europe’s most stable income-producing properties after the financial crisis. Firms are now flocking to riskier office buildings, shops and warehouses as prices for the safest assets in Europe climb to their highest level since 2007.
Almost 60 percent of investors were searching for riskier properties at the end of the first quarter, up from 47 percent a year earlier, according to a study by London-based research firm Preqin Ltd. The proportion of buyers seeking the highest quality buildings with tenants in place dropped to 35 percent from 56 percent.
JPMorgan Asset Management owns about 3 billion euros of core properties in Europe, including offices, shops and warehouses in the U.K., France and Germany, Reilly said. The majority of its property holdings, about $45.5 billion excluding real estate investment trusts, is in the U.S. Europe is second at about $7.8 billion and Asia trails with around $1.1 billion.
Buying properties in need of investment to reach their earnings potential is easier now because banks are more willing to sell underperforming loans tied to real estate than they had been in the aftermath of the financial crisis, he said.
“Conversations with banks are more productive today than they were a couple of years ago,” when there was a big difference between asking prices and bids, Reilly said. “That should accelerate through 2015.”
Banks will sell loans with a face value of 83 billion euros this year, 30 percent more than in 2013, as they clean up their balance sheets to focus on new business, according to data compiled by PricewaterhouseCoopers LLP.
The JPMorgan unit will focus on buying offices in large cities including Paris, Berlin, Hamburg, Munich, Frankfurt and the English cities of Birmingham and Manchester. High prices in London make it difficult to find profitable deals there, he said.
“We like troubled assets in really good markets,” he said. “So when you fix the asset, you’ve got a core property.”
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