CapitaLand Café podcast with Simon Treacy, CEO, Private Equity Real Estate, CapitaLand Investment

Question: How does the private equity real estate industry work?

Simon: It's different from the public markets and listed real estate investment trusts (REITs). This is where institutions represent retirees and investors who have got their retirement savings, and they wish to achieve a return that's somewhat greater than cash and bonds for instance. And therefore private equity is where you raise money from institutional investors, family offices and ultra high net worth individuals.

Typically, you’ll buy properties on their behalf in a fund structure. It's private, so information is available only to those investors. And the benefit of that is that you don't get carried away with the short term movements in the share prices, or in the real estate sense - the prices of the listed REITs.

Private equity real estate is now a huge investment class all around the world. Investors invest cross-border, and they invest with lots of different managers, like CapitaLand.

So you have time to really execute and do things in a way that can achieve long-term objectives for the investors. Private equity real estate is now a huge investment class all around the world. Investors invest cross-border, and they invest with lots of different managers, like CapitaLand.

?Question: How do you analyse assets?

Simon: We analyse assets by getting everyone's input, and I think that's the most important thing. You don't want a screen jockey, just picking up a rent roll, plugging in assumptions and producing a standard report. You really want to take a step back, look at the property, the market, the economy and demand drivers. You want to walk around the property, and look at the whole sub-market. You want to get an idea on all the dynamics that could impact supply and demand.

It's a qualitative process initially to make sure we have the right view on each property. And then you go through the numbers and see if there's a reconciliation. So that you can make a decision as to whether that property fits the fund, or whether it doesn't. If it does fit, then you go into more detailed analysis so that you can come up with a price, which you can negotiate with the seller to buy for the fund.

It’s very objective, and it should be a very calm process so as to make sure we know it’s a right investment decision. Because I can assure you, once you buy an institutional grade asset that's worth maybe a couple hundred million dollars, you live with how that asset performs, and that's your reputation.

Question: Having worked in so many countries throughout your career, can you tell us what are the cultural differences between the East and the West?

Simon: It's incredible how homogeneous the world really is. People think that operating is different in different markets. It is, but at the end of the day, there's the same ingredients on how to communicate with people and to find ways of doing business.

The interplay between cultures is really exciting... So there's arbitrage between different cultures and how you conduct business at times.

The interplay between cultures is really exciting. For example in Japan, where everyone’s quite homogeneous, they do like a foreigner at times, coming in and stopping the long discussions to ask the right question to try to get a decision. So there's arbitrage between different cultures and how you conduct business at times.