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Non-Residential Property Nearing the top of the cycle

November 15, 2017

In a low-interest rate environment, it is tempting to gear up non-residential property to generate higher returns on equity. Yet, we believe now is not the time to be pushing leverage (gearing) levels too high. As the RBA quite rightly points out, if there is a “marked increase in global long-term interest rates, highly leveraged investors close to the maximum LVR covenants on bank debt could become vulnerable to breaching loan covenants.” In such an environment, highly leveraged investors face two choices, either provide additional equity to reduce the LVR below the maximum covenant or secondly, sell the asset, which may not be desirable if there are other forced sellers in the market. As we approach the end of 2017 and almost 10 years since the GFC, it is timely that the RBA sends a warning shot across the bow. No one has a perfect crystal ball of what lies ahead, but it’s a timely reminder for market participants to pause and take stock of where we are in the cycle.

Spotlight

Amstar

Established in 1987 and headquartered in Denver, Colorado, Amstar is a real estate investment manager that acquires, develops and manages all major property types in the United States and in select international markets. The company’s two primary divisions include: i) Amstar Group LLC (“AGL”), which targets value-add acquisitions, major renovations and repositioning's and opportunistic ground-up developments in the Americas, and ii) Amstar Global Partners Ltd. (“AGP”), which invests opportunistically in ground-up developments through commingled funds in select international locations.

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Non-Residential Property Nearing the top of the cycle